RBA Governor Lowe Hints at Interest Rate Pause: What’s Next for AUD/USD?

Less than 24 hours after a 25bp hawkish hike by the RBA, Governor Lowe hinted at a pause in interest rate increases in a speech titled “Inflation and Recent Economic Data.” He stated that while they seek to bring down inflation, they need to be prepared for a rise in unemployment. The speech also revealed that inflation has peaked in Australia, and rents are rising. As a result, the RBA expects inflation to trend lower in the coming years, but there is still uncertainty about the exact path.

The speech reassured the market that the RBA Board is monitoring data carefully and has the flexibility to respond as needed. Based on this, we can assume that the Board is close to a point where it will be appropriate to pause interest rate increases. However, with incoming data still uncertain, the decision is still in the air, and the RBA will do what the data tells it to.

One More Hike and Done for the RBA?

Is it going to be one more hike and then done for the RBA? Governor Lowe’s speech leads us to this conclusion. Still, it is clear that the RBA is not yet sure about it, and incoming data will impact their decision at their next meeting on April 4th.

If inflation is slightly softer (ideally below 7%) and employment data holds, a 25bp hike in April followed by a pause seems more plausible. But if the CPI number rises, coupled with rising unemployment and weak employment growth, a pause will be unlikely, and there may even be calls for a 50bp hike.

Upcoming Data of Interest for the RBA’s April Meeting

• March 14th, 11:30 – Household spending
• March 16th, 11:30 – Employment
• March 28th, 11:30 – Retail trade
• March 29th, 11:30 – Monthly consumer price index

Related Facts

• Inflation remains around 2%, below the RBA’s 2-3% target range.
• Since early February, AUD/USD has traded in a tight range between 0.78 and 0.81.
• The US Federal Reserve is expected to raise rates at least three more times this year.
• The RBA has not raised interest rates since November 2010.

Key Takeaway

The Governor’s speech suggests that an interest rate hike in April followed by a pause is a plausible scenario for the RBA. However, incoming data, particularly inflation, and employment, will likely impact their decision. So, traders should monitor upcoming data releases to anticipate the RBA’s next move.

Conclusion

The Governor’s speech eased concerns about a series of rate hikes and hinted at a pause in interest rate increases. Although the RBA is still unsure, the upcoming data releases will help them make an informed decision. So, forex traders should remain cautious and base their trades on fundamental factors, such as economic indicators and political events.