{"id":701123,"date":"2024-06-20T08:34:54","date_gmt":"2024-06-19T22:34:54","guid":{"rendered":"https:\/\/www.gomarkets.com\/?p=701123"},"modified":"2024-11-01T10:19:21","modified_gmt":"2024-10-31T23:19:21","slug":"a-frightened-hawk-the-rba-needs-to-come-clean","status":"publish","type":"post","link":"https:\/\/www.gomarkets.com\/en\/articles\/central-banks\/a-frightened-hawk-the-rba-needs-to-come-clean\/","title":{"rendered":"A frightened Hawk \u2013 The RBA needs to come clean"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">We know that this is slightly contrary to the consensus views but we think it needs to be said. The communication from the RBA (Reserve Bank of Australia) is unusually unclear, confusing and conflicted.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The view conveyed in statement, press conference and minutes currently we would argue counter each other. And the reason for this we believe is because the RBA is a reluctant hawk and is frightened to act.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Let us now present why we think this and what it will mean for FX and yields in particular.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The RBA has just completed a mass review of its operations and one of the key changes was to improve transparency. This included press conferences, extended meetings, and more public discussions from members. The catch with this has been the mixed communications.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Take for example the statement which was extremely ambiguous. It was filled with terms like uncertainty, mixed signals, and complexity. It explains why the statement has this line: <\/span><i><span style=\"font-weight: 400;\">\u2018the path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.\u2019<\/span><\/i><\/p>\n<p><span style=\"font-weight: 400;\">That\u2019s fair \u2013 things are complex and we understand why the board is waiting for more data.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">That was countered with this: \u2018<\/span><i><span style=\"font-weight: 400;\">The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.\u2019<\/span><\/i><span style=\"font-weight: 400;\"> Historically, whenever the Board has included such a resolute statement in its communications, they followed up with a cut or a hike in the preceding meetings \u2013 the frightened hawk is there and strongly suggests that a rate hike is likely.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The initial AUD reaction to the statement we think shows why the communication is mixed.<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-406495\" src=\"https:\/\/www.gomarkets.com\/au\/wp-content\/uploads\/2024\/06\/1-1.png\" alt=\"\" width=\"904\" height=\"589\" \/><\/p>\n<p><span style=\"font-weight: 400;\">Then take the press conference \u2013 Governor Bullock\u2019s were much stronger than the statement, indicating a significant stance, not really clear in the statement.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">As mentioned, the Board stated they are not ruling anything in or out, but in reality, they have dismissed the possibility of rate cuts. That was confirmed when Bullock was asked on this exact point and confirmed that rate hikes were the only things discussed. There was no ongoing discussion about cuts in the near or medium term as they do not expect inflation to reach their target by mid-2026.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The Board\u2019s concern is that inflation is notably higher than expected, employment is solid and that overall demand is still generating inflation.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The reaction to all this was clear here:<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-406496\" src=\"https:\/\/www.gomarkets.com\/au\/wp-content\/uploads\/2024\/06\/2.png\" alt=\"\" width=\"897\" height=\"665\" \/><\/p>\n<p><span style=\"font-weight: 400;\">The next notable reaction was the interbank market. All though it doesn\u2019t appear like much in this chart.<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-406497\" src=\"https:\/\/www.gomarkets.com\/au\/wp-content\/uploads\/2024\/06\/3.png\" alt=\"\" width=\"912\" height=\"576\" \/><\/p>\n<p><span style=\"font-weight: 400;\">Please understand this change is actually from a \u2018cut\u2019 to \u2018hike\u2019\u00a0 so yes there is a 10% chance of a hike, that is from a 10% chance of a cut.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">July will be crucial with substantial data releases, including the second quarter CPI (July 31), GDP figures, and the wage price index.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Current forecasts suggest that inflation and employment are performing better than expected, raising concerns about the need for a potential harder landing in the economy to return inflation back to target.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The focus is now shifting towards slowing down the economy further despite the per capita recession because in the RBA\u2019s view the impact on the household\u2019s price power in the future from high inflation is still too high.<\/span><\/p>\n<p><b>Future Rate Decisions<\/b><\/p>\n<p><span style=\"font-weight: 400;\">All things being equal \u2013 with the RBA turning itself in knots and trying so hard to stay the course the RBA&#8217;s commentary suggests it still has preference to hold rates if possible.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The big issue as it acknowledges is the possible need for near term tightening due to a lack of progress towards inflation targets.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Here is the market\u2019s forecast for rates post the meeting on Tuesday<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-406498\" src=\"https:\/\/www.gomarkets.com\/au\/wp-content\/uploads\/2024\/06\/4.png\" alt=\"\" width=\"907\" height=\"509\" \/><\/p>\n<p><span style=\"font-weight: 400;\">Which probably explains the AUD\/USD reactions in the following 24 hours<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-406499\" src=\"https:\/\/www.gomarkets.com\/au\/wp-content\/uploads\/2024\/06\/5.png\" alt=\"\" width=\"911\" height=\"479\" \/><\/p>\n<p><span style=\"font-weight: 400;\">It flatlined \u2013 thus the market is telling us that it needs a catalyst, and those catalysts are clearly coming in July.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">So to finish what\u2019s the key?<\/span><\/p>\n<p><span style=\"font-weight: 400;\">A significant upside surprise in the RBA&#8217;s core inflation measure could lead to a rate hike, despite slowing demand and labour market conditions. We get the monthly inflation data next week, this will be the first strike then the July 31 quarterly read. This will be huge and will be the biggest AUD mover outside of an RBA meeting. We will be providing as much information on this release the closer we get to the release.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">However as shown the RBA is a terrified hawk and without this inflation beat, the risk of further tightening diminishes, with expectations for the RBA to remain on hold until potentially the first rate cut in February 2025.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The next RBA meeting on August 6 it\u2019s going to be an interesting 6 weeks for AUD traders ahead of what is a likely live event.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>We know that this is slightly contrary to the consensus views but we think it needs to be said. The communication from the RBA (Reserve Bank of Australia) is unusually unclear, confusing and conflicted.\u00a0 The view conveyed in statement, press conference and minutes currently we would argue counter each other. And the reason for this [&hellip;]<\/p>\n","protected":false},"author":94,"featured_media":701124,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[2805],"tags":[],"class_list":["post-701123","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-central-banks"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v24.5 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>A frightened Hawk \u2013 The RBA needs to come clean - Wixad<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.gomarkets.com\/en\/articles\/central-banks\/a-frightened-hawk-the-rba-needs-to-come-clean\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"A frightened Hawk \u2013 The RBA needs to come clean - Wixad\" \/>\n<meta property=\"og:description\" content=\"We know that this is slightly contrary to the consensus views but we think it needs to be said. The communication from the RBA (Reserve Bank of Australia) is unusually unclear, confusing and conflicted.\u00a0 The view conveyed in statement, press conference and minutes currently we would argue counter each other. 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 The May surprises and what to do with it","date":"2024-06-25 14:56:46","excerpt":"We know that this is slightly contrary to the consensus views but we think it needs to be said. The communication from the RBA (Reserve Bank of Australia) is unusually unclear, confusing and conflicted.\u00a0 The view conveyed in statement, press conference and minutes currently we would argue counter each other. And the reason for this ","link":"https:\/\/www.gomarkets.com\/en\/articles\/central-banks\/trading-the-inflation-bumps-the-may-surprises-and-what-to-do-with-it\/","type":"next","category":"central-banks"},"previous":{"id":701020,"slug":"when-less-is-more-why-one-cut-in-2024-was-good-news","title":"When less is more \u2013 Why one cut in 2024 was good news?","date":"2024-06-14 12:27:41","excerpt":"We know that this is slightly contrary to the consensus views but we think it needs to be said. The communication from the RBA (Reserve Bank of Australia) is unusually unclear, confusing and conflicted.\u00a0 The view conveyed in statement, press conference and minutes currently we would argue counter each other. And the reason for this ","link":"https:\/\/www.gomarkets.com\/en\/articles\/central-banks\/when-less-is-more-why-one-cut-in-2024-was-good-news\/","type":"previous","category":"central-banks"},"category":{"slug":"central-banks"},"_links":{"self":[{"href":"https:\/\/www.gomarkets.com\/en\/wp-json\/wp\/v2\/posts\/701123","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.gomarkets.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.gomarkets.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.gomarkets.com\/en\/wp-json\/wp\/v2\/users\/94"}],"replies":[{"embeddable":true,"href":"https:\/\/www.gomarkets.com\/en\/wp-json\/wp\/v2\/comments?post=701123"}],"version-history":[{"count":0,"href":"https:\/\/www.gomarkets.com\/en\/wp-json\/wp\/v2\/posts\/701123\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.gomarkets.com\/en\/wp-json\/wp\/v2\/media\/701124"}],"wp:attachment":[{"href":"https:\/\/www.gomarkets.com\/en\/wp-json\/wp\/v2\/media?parent=701123"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.gomarkets.com\/en\/wp-json\/wp\/v2\/categories?post=701123"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.gomarkets.com\/en\/wp-json\/wp\/v2\/tags?post=701123"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}