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3 July 2024 | FXGT.com

Sales Push Australian Dollar Up RBA Minutes Raise Rate Hike Expectations

  • Australian dollar performance: The Australian dollar edged up against the U.S. dollar on Wednesday morning, driven by unexpectedly strong domestic retail spending data. The Australian dollar rose to $0.6675, maintaining within the range of the past six weeks between $0.6580 to $0.6700.
  • Australian retail sales: Retail sales in Australia increased by 0.6% in May, surpassing market expectations of 0.2%. This growth was primarily due to discounting and early sales events, despite consumers facing high inflation and mortgage rates.
  • RBA’s June Meeting Minutes: The Reserve Bank of Australia (RBA) released the minutes of its 18 June policy meeting on Tuesday, revealing that the board ultimately saw the case for holding rates as the stronger option. However, they discussed the possibility of raising rates and have not ruled out future policy moves. The board believes it is possible to bring inflation to target while maintaining economic and labour market stability.
  • Potential Rate Hike: Despite holding rates, the RBA acknowledged the recent inflation surprise in May, which rose from 3.6% to 4.0% year-on-year. This inflation spike raises the possibility of another rate hike, with about a 50% chance priced in by November.
  • Market Expectations: Markets currently see about a 30% chance of a rate hike at the RBA’s next meeting in August, while dismissing any possibility of an RBA rate cut this year. Investors do not currently expect the RBA to start lowering interest rates until April 2025 at the earliest.
  • Economic Resilience: Both economies have shown resilience to higher rates with stubbornly high inflation. With expectations of monetary policy to remain on hold in both countries until inflation shows a sustained decline, the AUD/USD pair is likely to remain within its current range.
  • Key Data Releases: The upcoming second-quarter Australian CPI report on July 31st will be critical in determining future rate decisions. A higher-than-expected inflation reading could lead to increased expectations of a rate hike. Additionally, the US Nonfarm Payrolls (NFP) data for June, set to be released on Friday, will provide insights into US labour demand and wage growth.
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