AUD/USD and NZD/USD Fundamental Daily Forecast – RBA, Lowe Reaffirm Rate Hike Will Not Be Needed until 2024

The Australian Dollar is trading nearly flat early Tuesday as traders assess the impact of the Reserve Bank (RBA) monetary policy meeting minutes and a speech by RBA Governor Philip Lowe on the currency. Traders are also monitoring developments between the United States and China after a Xi-Biden virtual meeting on Monday.

At 05:39 GMT, the AUD/USD is trading .7348, up 0.0001 or +0.01%.

RBA Minutes:  Policymakers See Inertia in Home-Grown Wages, Inflation

Australia’s central bank board still thinks it is likely a rise in interest rates will not be needed until 2024 given inertia in home-grown wages and inflation, even as financial markets price a move as early as next June, Reuters reported.

Minutes of the Reserve Bank of Australia’s (RBA) November policy meeting released on Tuesday showed the bank’s board did acknowledge the risks on inflation had shift upward after a surprisingly strong reading on third-quarter consumer prices.

Core inflation picked up to 2.1% and moved back into the RBA’s 2-3% target band for the first time in six years, a development the bank had not expected until 2023.

“The central scenario for the economy continued to be consistent with the cash rate remaining at its current level until 2024,” the minutes showed.

“However, as the risks to the inflation forecast had shifted higher, it had become possible that an earlier increase in the cash rate would be appropriate.”

As a result, while the bank kept the cash rate at a record low of 0.1%, it abandoned a target for 2024 bond yields concluding it was no longer credible.

RBA Chief Dismisses Calls for 2022 Rate Hike

Australia’s top central banker has again pushed back against market wagers for a rise in interest rates next year, arguing that home-grown inflation was likely to lag well behind the spikes seen in some other developed nations, Reuters reported.

Speaking on Tuesday, RBA Governor Philip Lowe noted that inflation in Australia was starting at a lower point than in many counterparts and the wages system had much more inertia built in.

“The latest data and forecasts do not warrant an increase in the cash rate in 2022,” said Lowe, taking issue with market pricing for a hike as soon as June.

“The economy and inflation would have to turn out very differently from our central scenario for the Board to consider an increase in interest rates next year.”

Short-Term Outlook

Traders are wagering on at least three hikes next year, largely reflecting inflation pressures globally and particularly the United States.

Nonetheless, the RBA is still concerned about the slow growth in wages. Unlike the U.S., Australian inflation just recently moved to 2.1%, putting it inside the RBA’s target band of 2-3% for the first time in six years.

Meanwhile, also in contrast to the United States, in Australia there has been no sign of a broad-based surge in wages growth.

Higher U.S. inflation and wage growth and the possibility of multiple Fed rate hikes in 2022 make the U.S. Dollar a more attractive asset than the Australian Dollar.