-
The Reserve Bank of Australia remain their interest rate at 4.35% and hinted that rates may stay longer than expected as Australia’s labour force remain robust and wages continue to grow.
-
The Federal reserve is likely to perform a 25 bps cut after the U.S presidential election.
-
Aussie dollar likely to remain weak and may see strong resistance at 0.6656 as RBA fails to give any out of the box surprise.
RBA remain hawkish despite disinflationary trend.
Although inflation pressures are easing, with YoY inflation down to 2.8%, the Reserve Bank of Australia (RBA) remains cautious and is unlikely to cut rates until 2025, pending further data. This decision is also supported by a strong labor market, despite slower-than-anticipated productivity growth, which may decline further. Consequently, the RBA is expected to hold rates steady at 4.35%, even as other major central banks lower rates to stimulate growth, with the Bank of Japan being an exception. Additionally, regardless of the U.S. election results, the dollar is likely to strengthen towards the 105.00 level, despite a potential 25 basis point rate cut, which could weaken other major currencies, including the Australian dollar.
Fed 25 bps cut is still in play.
The Federal Reserve is expected to lower rates by 25 basis points. While Tuesday’s election is the primary focus, it’s important to remember that the Fed’s policy decision on Thursday is also likely to impact markets significantly. Although a 25bp rate cut is anticipated and largely factored into current pricing, Fed Chair Jerome Powell’s comments on the economic situation and the influence of the next U.S. president on future outlook will be crucial. The Fed will be cautious about how its decisions and statements might impact financial markets, which are already experiencing some volatility. Markets have shown increasing confidence in a Donald Trump win, with equities, the dollar, and Treasury yields all trending upward recently. If Trump is re-elected, these trends may persist. However, a victory for Kamala Harris could lead to a sharp reversal, as markets may adjust to expectations of higher taxes and a less favorable business climate, though potentially greater stability in trade policy and international relations.
China’s stimulus plan is unlikely to have a significant immediate impact on the Australian dollar.
Besides the FOMC meeting and the U.S. presidential election, another major event is the expected announcement of a new stimulus package by the Chinese government. While the size and delivery of this package could influence the Australian dollar’s growth over the long term, its effect may be limited due to lingering uncertainties about how the Chinese government will implement it.
We remain neutral on the strength of the Aussie dollar with limited growth expected
The Australian dollar is expected to face strong resistance around 0.6656–0.6690, as demand may remain low with many investors likely shifting towards the U.S. dollar through the end of 2024. The Aussie will likely outperform the Yen on the weakness of the Yen in near-term and Indonesian Rupiah
Figure 1 – Australia CPI continue to dip
Please refer to the disclaimer here.
