The RBA has announced overnight that they are likely to leave interest rate cuts off the agenda for the meantime as high inflation makes it difficult. Typically if inflation is high then interest rates are raised but at the moment it would be almost impossible to raise rates. The markets have been expecting rate cuts for a long time so to have it removed from the agenda this has seen exchange rates massively strengthen overnight.
The rate has moved over 2% during the night and coming in this morning has been a real shock to see the exchange rates move as much as they have. The comments that came from the meeting included a statement saying ‘the most prudent course is likely to be a period of stability in interest rates.’ This is very different from the previous dovish stance and this is the main reason for the massive change in exchange rates.
The Bank of England meet on Thursday as do the European Central Bank so keep your eyes on the statements released immediately after both meetings as this could provide further volatility. The Australian economy has recently struggled and although the interest rates are now likely to remain the same for a while the other problems that the economy is facing have not disappeared.
Indeed, the Chinese economy has been struggling as of late and unemployment is close to its highest level in 5 years. Owing to the massive change overnight it will be interesting to see if the exchange rate pulls back some of its gains.
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