The RBA decided to crush the feelings of the markets that they might be finished with their rate-hiking cycle. How? Even though the rate was as expected, what traders need to be aware of is the statement of every central bank. That was evident with what happened last night.
The RBA rocked the markets, saying they "anticipate future rate hikes". The ASX 200 declined by 19 ticks or 0.25% on a 1-minute candle and continued to stay down for the rest of the session. However, the Aussie dollar enjoyed the rally. The AUD/USD strengthened by 30.9 pips or 0.45%
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So what else did the RBA mention that provided the hawkish sentiment? Other than expecting future rate hikes, wage growth is "continuing to accelerate from recent lows and further acceleration is projected due to tight labour market and increased inflation". Tight labour markets are not just the other important indicator of potential inflation, but wage growth has been very key, and not just in Australia.
We've seen in the US has employment costs ticking down led to stock indices rallying, trying to signal to the Fed that inflation is going down.
Going back to Australia, with the current Wage Price Index YoY sitting at 3.1%, when we get the next release towards the end of February if there is a significant fall in wage prices, that could lead to the RBA maybe going ahead with one more 25 BPS. However, one indicator won't be enough to change the RBA's mind, CPI QoQ was higher than expected at 1.9% when the forecast was for it to go down to 1.6% from a prior of 1.8%. The YoY didn't provide any relief either, as it was also higher than expected at 7.8%. All in all, inflation is still the main driving force behind the RBA's decision, and if we keep getting surprises or sticky inflation, we could see at least a couple
Once the traders had a go at the markets in response to the RBA, then it was time for the big boys to give their views on the RBA. Starting with CBA, they had expected the Terminal Rate to be at 3.35%, but they now anticipate two more rate hikes of 25 BPS to 3.85%. So what does this do for the Australian economy? Easy. The higher the rate the more pain for the economy. CBA say the probability of a soft landing is "lowered significantly".
On the flipside, ANZ already had a forecast of 3.85% of where they expect the rate to end, which they haven't changed post the rate decision.
