AUD rises on hawkish governor comments

[MongiIG]

The Australian dollar is on the rise again this morning, lifted by hawkish comments from its new governor.

 

 Angela Barnes | Financial presenter/producer, London | Publication date: Tuesday 21 November 2023 11:45

In the minutes that followed the decision to raise rates by 25 basis points to 4.35% a fortnight ago, Michele Bullock said that even though there was a credible case to keep rates steady, board members thought there was a risk of inflation rising if rates were not raised. The board also noted that the RBA cash rate remains below main rates of many other countries.

(AI Video Transcript)

The Australian dollar

The AUD has been increasing in value recently because of what the new governor of the Reserve Bank of Australia (RBA) said. A couple of weeks ago, the RBA decided to raise interest rates by 25 basis points to 4.35%. After this decision, Michelle Bullock, the new governor, mentioned that it would make sense to keep rates steady. However, the board members were worried that if rates weren't raised, people might start expecting inflation to increase. The RBA also noticed that the Australian cash rate was still lower than the rates in many other countries. This means that there might be room for more interest rate hikes in the future. Right now, the market thinks there is only a 5% chance of another rate hike in December, but there is a 40% risk implied for a possible rate hike in the new year.

The Reserve Bank of Australia

The recent increase in the value of the Australian dollar is because of the new governor's strong stance and the possibility of more interest rate hikes. This shows that the RBA is keeping a close eye on inflation expectations and wants to control them. Additionally, considering that the cash rate is lower than other countries, it suggests that the RBA might tighten monetary policy even more in the future. In summary, the Australian dollar is going up because of the new governor's strong comments and the potential for future interest rate increases. The RBA is concerned about rising inflation expectations and wants to make sure their rates are similar to other countries. Even though the market thinks it's unlikely to have another rate hike in December, there is a higher chance for a rate change in the new year.

 

 

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.