Reserve Bank of Australia's interest rate decision: Market expects interest rate cuts, but there is still uncertainty

The Reserve Bank of Australia is about to announce its latest interest rate decision, and the market is closely watching whether it will cut interest rates for the first time in four years. At present, the benchmark interest rate in Australia remains at 4.35% and has not been adjusted since November last year. Although the market generally expects the central bank to adopt loose policies, decision-makers may still have reservations.

The key factors affecting interest rate decisions include:

1. The labor market remains tight: Australia's unemployment rate remains around 3.9%, indicating that the job market is still resilient.

2. Consumer spending remains stable: Despite the slowdown in inflation, retail sales data remains robust, indicating no significant weakness on the demand side.

3. Strong credit growth: Australia's housing loan market remains active, and some investors believe that early interest rate cuts may contribute to the foam in the real estate market.

4. The trend of the Australian dollar affects inflation expectations: The recent strengthening of the Australian dollar may lower the prices of imported goods, thereby easing inflationary pressures to some extent.

Despite market bets on interest rate cuts, the labor market remains strong, consumer demand is stable, and with the recent strengthening of the Australian dollar, the Reserve Bank of Australia may still choose to postpone interest rate cuts, "said economist James McIntyre according to market research.

The Australian dollar remains volatile at a high level, and may experience fluctuations due to the impact of interest rate decisions

Recently, the Australian dollar has fluctuated around a two month high against the US dollar, reflecting market uncertainty about the policy direction of the Reserve Bank of Australia. Investors generally believe that if the Reserve Bank of Australia maintains interest rates unchanged, the Australian dollar may continue to be supported; If interest rates are cut, it may bring short-term depreciation pressure.

Possible trends of the Australian dollar in different scenarios:

If the Reserve Bank of Australia maintains interest rates unchanged: The Australian dollar may further strengthen as the market interprets it as the central bank's increased confidence in the economy and may delay future interest rate cuts.

If the Reserve Bank of Australia announces a rate cut, the Australian dollar may weaken in the short term as investors may expect more room for further rate cuts in the future.

3. If the policy statement sends a dovish signal: even without interest rate cuts, if the Reserve Bank of Australia suggests that monetary policy may be relaxed in the future, the Australian dollar may still face some pressure.

The cooling of the commodity market poses challenges to Australia's economic growth

The global commodity market has recently been affected by the slowdown in demand from major Asian countries, resulting in mining giant BHP Group's financial report showing a year-on-year decline of 23% in its first half profit. As the world's largest mining company, BHP's declining performance highlights that the weakness in the commodity market may pose greater challenges to the Australian economy.

Meanwhile, international crude oil prices have slightly increased, influenced by the possibility of OPEC+delaying production increases and Ukrainian drone attacks on Russian oil facilities.

From a technical perspective, the AUD/USD is currently in a rebound phase and is still subject to the influence of a tight pressure range at the horizontal level. If the Reserve Bank of Australia chooses to break through upwards after its interest rate decision, it will need to maintain pressure around 0.6400 in order to continue its rebound. At the same time, technical indicators have become somewhat sluggish, and caution should be exercised against a second retracement. The lower moving average support is around 0.6280.

FXCUE Editor's viewpoint:

The interest rate decision of the Reserve Bank of Australia needs to pay attention to whether its policy direction is relaxed as expected by the market. If the Reserve Bank of Australia maintains interest rates unchanged, it may mean that it still has confidence in the economy and wants to observe data for a longer period of time, which will continue to support the Australian dollar. However, if the central bank announces a rate cut, the Australian dollar may come under pressure in the short term, but the market may also pay more attention to the long-term interest rate guidance in the policy statement.