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I am not holding my breath for anything illuminating to come out of the RBA’s accompanying rate statement and press conference. I believe we will see the Board underscore a cautious tone, echoing the ‘data dependent’ approach. The central bank will likely shine the spotlight on the disinflation progress but stop short of providing anything concrete to signal further cuts.
The RBA will also release their detailed quarterly updated forecasts on growth (GDP [Gross Domestic Product]), unemployment, inflation, and the Cash Rate. Traders will look at these metrics closely for any revisions. I expect slightly lower revisions to GDP and inflation, but I do not see much change in forecasts for the Cash Rate.
Inflation and GDP: Main Drivers Behind a Rate Cut
In Q2 24, headline Australian inflation came in lower than expected, decelerating to 2.4% (from 2.8% in Q3 24) and marking the lowest quarterly reading since early 2021. This not only places headline inflation within the lower boundary of the RBA’s inflation target band of 2-3%, but the trimmed mean inflation rate – the RBA’s preferred measure of underlying inflation – also exhibited signs of softness, cooling to within touching distance of the RBA’s upper target band (3.0%) at 3.2% in Q4 24 (year-on-year [YY]) from 3.5% in Q3 24.
GDP cooled to 0.8% in Q3 24 (YY), down from 1.0% in Q2 24 and marked the slowest pace of economic growth since late 2020. Quarterly (Q3 24), GDP grew by 0.3%, following a slight increase of 0.2% in the previous quarter (Q2 24).
However, while inflation is trending in the right direction and growth remains subdued – providing some legroom for the RBA to cut the Cash Rate this week – the central bank’s easing cycle will likely be slow and steady this year. Coupled with underlying inflation trending just north of the RBA’s inflation target, the central bank still faces a reasonably solid jobs market. Employment increased by 56,300, comfortably surpassing the market’s median estimate of 15,000 and was above November’s revised reading of 28,200, and wage growth remains steady.
AUD/USD Shaking Hands with Resistance
The AUD/USD currency pair (Australian dollar versus the US dollar) finished last week locking horns with daily resistance between US$0.6417 and US$0.6364 (this area comprises several ratios [including Fibonacci ratios], a horizontal resistance level, and an ascending resistance extended from US$0.6170).
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