The FP Markets Research Team produces First Light News during the early hours of the European session, a daily Market Briefing that helps ensure traders and investors are up to date in the macro space for the day ahead.
Good morning.
RBA Minutes
Overnight welcomed the minutes from the Reserve Bank of Australia’s (RBA) rate decision on 7 November, and it left behind a somewhat hawkish vibe, hence the immediate lift seen in the AUD. The minutes showed Board Members did consider holding for a fifth consecutive meeting but opted to raise the Cash Rate Target by 25bps, noting ‘that the risk of not achieving the Board’s inflation target by the end of 2025 had increased’. Importantly, the minutes also highlighted its recent inflation forecasts (to decline to the 2-3% range by the end of 2025) were based on one or two more rate hikes.
The minutes also repeated the less hawkish (data-dependent tightening) sentence from the post-rate statement in early November: ‘Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe would depend on how the incoming data alter the economic outlook ad the evolving assessment of risks’.
RBA Governor Michelle Bullock (at the ASIC Annual Forum, Melbourne) was also live just before the minutes were released and communicated that inflation is a ‘crucial challenge over the next one to two years’. The RBA Governor added: ‘There is a bit of a perception that the Inflation at the moment really is all a supply driven thing. Petrol prices, rents, these sorts of things, energy, but there’s an underlying demand component to it as well. And that’s what central banks are trying to get on top of’.
The immediate aftermath of the above events witnessed the AUD/USD rally, currently outperforming in the G10 FX space.
The next RBA rate decision is set for 5 December with the next policy meeting not until early February next year; according to the ASX 30-Day Interbank Cash Rate Futures, markets are fully pricing in that the central bank will hold the OCR at 4.35% in December.
FOMC Minutes on the Radar
Market participants will also receive the latest minutes from November’s policy meeting at 7:00 pm GMT, which saw the Fed leave the Fed Funds target rate unchanged at 5.25%-5.50% (22-year high) for a second successive meeting, as widely expected.
Overall, most desks expect the Fed’s vibe to remain unchanged. You will recall that the latest meeting noted that policy is restrictive and that the full effects of policy tightening have yet to be felt.
Since November’s meeting, CPI inflation (YoY) eased to 3.2% amid lower energy prices. Unemployment increased to 3.9% and jobs growth has slowed. Consumer sentiment remains on the downside, keying in a fourth consecutive monthly decline to 60.4 (prelim UoM), with retail sales also registering its first decline since April. Ultimately, this indicates downward pressure on both inflation and growth.
However, according to the advance Q3 release, economic activity jumped to 4.9%, up from 2.1% in Q2. This, as well as core CPI remaining double the Fed’s inflation target at 4.0%, shows there is still some work to be done. Couple this with Fed Chair Jerome Powell leaving the option of a hike on the table, the ‘higher for longer narrative’ is likely to remain for now.
G10 FX space as of 08:30 am GMT:
Thanks for reading. Have a great day.
DISCLAIMER:
The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only. To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives can be risky; losses can exceed your initial payment. FP Markets recommends that you seek independent advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.