- Australia’s central bank debated keeping interest rates constant.
- The arguments in favor of a 25 basis-point increase won out.
- There is uncertainty regarding the outlook for Australia’s inflation and labor market.
Today’s AUD/USD outlook is bearish as the Aussie weakens across the board. At its December policy meeting, Australia’s central bank debated keeping interest rates constant, emphasizing the advantages of proceeding gradually in an uncertain climate and the lag effects of the strong tightening implemented thus far.
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The Reserve Bank of Australia (RBA) Board considered three possibilities in its last decision this year: increasing by 50 basis points, 25 basis points, or stopping; nevertheless, the arguments in favor of a 25 basis-point increase won out.
However, it was the first time since the Board began raising interest rates in May that it had considered pausing. A large portion of the rate increase, which has already increased by 300 basis points to a ten-year high of 3.1%, still needs to be reflected in mortgage payments.
In particular, the Board highlighted that amid dimming expectations for the global economy, there was significant uncertainty regarding the outlook for inflation and the labor market.
According to the minutes, it ultimately decided against pausing since changing direction without a clear push from incoming data would make its reaction function unpredictable. It was also noted that no other central bank had yet taken this measure.
The RBA will meet again early in February to discuss policy. The markets are divided over whether the RBA will proceed with another 25 basis points or pause. By August next year, they forecast an interest rate peak of roughly 3.7%.
AUD/USD key events today
Investors will get some insight into the demand in the US housing market when the building permits report is released. The report will give the number of new building permits issued by the government.
AUD/USD technical outlook: Lower low confirms the bearish trend
AUD/USD has been consolidating after pausing at the 0.6675 support. This pause came after a steep bearish move making it highly likely that the bearish move would continue. The indicators on the chart support bearish momentum as the RSI trades below 50, and the SMA is far above the price.
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The price has broken and closed below the 0.6675 support level, confirming the continuation of the bearish trend. The price might make another steep move lower, similar to what came before the consolidation.
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Saqib Iqbal
