Last week Australia stunned the world when it decided to pause its series of interest rate hikes. With that single move, it seemed, the tightening cycle had come to a premature end.
Or maybe it was just a pause.
That’s what analysts at Hong Kong-based Currency Options Hotline argue in a recent note:
Last week, the Reserve Bank of
Australia (RBA) confounded economists’
forecasts — including our own! — by
holding short-term interest rates steady
This broke a run of 3 consecutive
quarter-point hikes going back to
But in retrospect, it’s clear that
the currency markets effectively
anticipated this decision. The Aussie
actually peaked in mid-January above
US$0.93, and has since fallen about 6.9%
That said, the same factors that
have thus far led to 3 consecutive
quarter-point interest rate hikes since
October, still exist. For example …
* The Australian economy is still
* Consumer spending and employment
are rising sharply.
* Inflationary pressures continue to
Because of this, we are pretty sure
RBA’s decision represents only a pause
— not an end — to the rising interest
On top of that, the Aussie’s retreat
to date has left it sitting just above
major support near US$0.865. To us,
that suggests the A$’s temporary
pullback has probably run its course —
which means the next move is likely to
be back up.
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