Tomorrow morning, the Australian central bank will hold its regular meeting, bringing this nerve-wracking month of nine G10 central bank meetings to a close. However, anything other than an unchanged interest rate would be a big surprise, as the market is pricing in a rate cut with only a 3% probability, and none of the economists surveyed by Bloomberg expect a change, Commerzbank’s FX analyst Michael Pfister notes.
RBA meeting is not expected to have much impact on AUD
“At first glance, this may seem surprising. Since the last meeting, labour market figures have not been particularly impressive. In July, the Australian labour market recorded an increase of 24,500 jobs, roughly as expected, but this was far from the exceptional figures seen the previous year. In August, however, jobs actually declined. It is only thanks to an upward outlier in April that the six-month moving trend is still holding up reasonably well (see figure below). In addition, quarterly job vacancies also declined in the period up to August. In short, the labour market no longer appears to be as robust as it was last year.”
“There is a simple reason why the RBA is not lowering interest rates despite this: inflation risks have not yet been eliminated. The monthly inflation indicator exceeded expectations in both July and August, reaching 3.0% year-on-year — up from 1.9% prior to the last meeting — and approaching the upper limit of the 2–3% target range. While this is only one indicator (the monthly inflation figures will not be fully implemented until publication at the end of November for October), it is likely to increase decision-makers’ concerns about overly rapid monetary easing.”
“Therefore, the cooling of the labour market is unlikely to be sufficient to justify faster interest rate cuts. Before its November meeting, the RBA will have new quarterly inflation figures and will be better placed to assess the strength of inflationary pressure. Until then, however, policymakers are likely to be cautious, which is why tomorrow’s meeting is not expected to have much impact on the Australian dollar.”