The Australian Dollar has benefited from this week’s bullish outlook, which has seen the US Dollar decline and equities indices rise.
Since it has been difficult to pinpoint the source of the favorable risk mood, demand for the haven USD has decreased. It may have benefited from predictions that the Fed will raise interest rates by only 75 bps as opposed to 100 bps in the week to come.
Intentions of China to possibly aid mortgage holders in the event of a boycott and rumors that contractors would receive cash to complete their projects may have played a role.
The optimism may have been boosted by Netflix not shedding as many customers as anticipated. To stop the latest decline in the base metal, mining behemoth Vale SA said that it will cut back on iron ore output.
In either scenario, the Australian dollar is higher, although internal problems may have caused some difficulties. The Governor of the Reserve Bank of Australia (RBA) and the Treasurer have been very preoccupied giving speeches and responding to press inquiries.
Highlights of a recently signaled examination of the RBA and monetary policy were revealed by Jim Chalmers, the Australian Treasurer. He said that the central bank’s operations, culture, and mandate will be examined by a three-person, impartial expert panel.
By stating, “I don’t want this to be all about taking potshots at the governor or the board,” he made an effort to keep the statement from becoming politically charged.
When questioned, he cited rising mortgage stress as a reason why higher interest rates will impact average Australians. He also emphasized how the board did not reflect the concerns of the employees.
The Australian Council of Trade Unions’ Secretary, Sally McManus, has argued in the past that the labor movement ought to be given a board seat. The review must be finished by March of the following year.
Philip Lowe, the RBA Governor was delivering a discussion called “Inflation, Productivity and the Future of Money” to the Australian Strategic Business Forum in Melbourne at the same time. This struck all the right elements for economists and RBA watchers both.
“I would like to welcome the announcement today by the Government of the details of the review of Australia’s monetary policy arrangement and the Reserve Bank,” he said as the speech was approaching the end.
The assembled reporters then had an opportunity to take some shots, although this was not the Governor’s first time playing the game.
He reaffirmed all that had been expressed previously and noted that comparable reviews in North America and Europe had reached the conclusion that a flexible level of inflation was appropriate.
The current directive says that achieving an inflation rate of 2-3%, on average, is the right aim for monetary policy in the country. It seems that the requirement has some latitude.
It is also possible that the assessment will suggest changing the board makeup.
The release of Australian CPI statistics the following week is expected to lead to an increase by the RBA at their meeting in August. If the Australian Bureau of Statistics (ABS) releases a scorching CPI, the RBA might decide to increase the official cash rate significantly.
When Lowe was asked regarding the aggressivity of possible rate increases, he emphasized that if rates are not hiked to the degree where they prevent inflation, the effect will be substantially greater interest rates.
The Australian dollar still has significant correlations to other types of assets, and this may continue to be the case, but an unexpectedly significant move by the RBA might end these accords, even though it might be for just a brief period of time.