Is the RBA Looking for More Hikes, or Has It Already Stopped?

Yesterday, AUD/USD was showing stability as it continued the retreat from Friiday, following the strong surge during most of last week, as the USD turned bearish on soft US consumer and proiducer inflation numbers. The retreat was driven by higher U.S. yields.

Although, this pullback was not unexpected as we mentioned, considering that this pair had surged around 3% last week as markets have increased the bets of the Federal Reserve’s rate pause after this month’s decline. Although, the Reserve Bank of Australia (RBA) might have already stopped rate hikes. As the likelihood of a rate hike pause gains momentum after the RBA held rates at 4.10% in the last meeting, the current rally in the AUD/USD pair should come to an end soon.

Economists at ANZ predict that the RBA will keep interest rates umoved at current levels, and traders were keenly waiting for the minutes from the Reserve Bank of Australia’s July 4 meeting on Tuesday for any clues about the future monetary policy. Australia’s economic growth is projected to rise amid a slowdown in the global economy, with some mixed numbers from China on Monday, which leaned more on the positive side.

Yesterday we saw some key data releases from China which included the Q2 GDP figures, June monthly activity data, and the PBOC MLF fixing. In the first quarter, the Gross Domestic Product (GDP) showed a larger-than-expected expansion, indicating positive economic growth during that period. However, the annualized GDP number fell short of expectations, suggesting that the overall pace of economic growth might not be as robust as initially projected.

Additionally, the industrial output demonstrated a stronger-than-anticipated increase, indicating growth and productivity in the industrial sector. On the other hand, retail sales saw a significant cooling off, indicating a slowdown in consumer spending and economic activity in the retail sector.

Today’s minutes from the last RBA meeting earlier this month were released in the morning

Reserve Bank of Australia July Meeting Minutes

• Board considered holding rates steady or hiking by 25 bps
• Strong case for both, but board judged arguments for holding steady were stronger
• Board agreed some further tightening may be required, would reconsider at August meeting
• Current stance of monetary policy was “clearly restrictive”, and would become more so
• Board discussed risks economy, consumption could slow more than expected
• Noted squeeze on household finances, risk unemployment could rise more than needed
• Board noted inverted yield curve pointed to tighter conditions, slowing growth
• Also risks with waiting too long for inflation to return to target
• Inflation proving sticky in other countries, Australian rates still lower than many others
• Labour market very tight, weak productivity adding to labour costs
• While domestic inflation had eased, service inflation still high along with rents, energy, food
• Annual wage growth seen rising to 4% in q3, following fair work award
• Economy had slowed considerably, q2 GDP growth seen around +0.2% q/q
• Consumer spending seen weak in q2, rebound in housing market to support consumption

AUD/USD Live Chart