Yesterday we all waited in anticipation of The Reserve Bank of Australia’s Cash Rate decision. Whilst it was not a surprise that the Interest Rate was kept at the 12 month low of 2.5%, the speculation was related more specifically to the Customer Consumer Price Index (CPI) data which came out two weeks earlier with a result of 3.0%, at the upper limit of the Reserve Bank’s target. It was considered that given this inflationary measure being a the upper limit of the target set by the Reserve Bank there was a possibility that Governor Glenn Stevens’ speech would indicate some possibility of future Rate rises to prevent hyperinflation.
The Australian Dollar remained relatively flat after the release of the Statement by Governor Stevens, as the statement provided no indication that they would consider a Rate rise as a result of this inflationary data, stating “Recent data showed an increase in inflation….but growth in wages has declined noticeably and is expected to remain relatively modest over the period ahead, which should keep inflation consistent with the target even with lower levels of the exchange rate.”
“Monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target.” It appears as though we will need inflationary figures trending as an annual average above the inflationary limit target, before it becomes a substantial concern for The Reserve Bank.
The significant movement that occurred overnight was associated with the UK Pound Sterling which related to the PMI data released showing positive results above the expansion midpoint, better than the forecast and the previous period.
The pairing of the AUD and GBP has been relatively flat for the last week and has shown a small break in the upward trend of the UK Pound Stirling in recent months however this could be short lived as the Pound gained 0.38% overnight against the Australia Dollar. This week continues with further significant data out of both Countries which is likely to cause continued volatility, including Employment data for Australia which is released Thursday at 11:30 AEST and later Thursday at the commencement of the European session is the Cash Rate Decision from The Bank of England (BoE). Much like that of the Australian Release yesterday, it is not anticipated that the Cash Rate will change from 0.5% however investors will be waiting for the statements of Governor Mark Carney to look for any potential indication of a Cash Rate rise for the remainder of the year as consistent strong data out of the UK provides substance to the thought that Interest Rate rises are really only a matter of time.
Any indication of this in Governor Carney’s speech is likely to cause Pound strength and the return to the upward trend.