RBA hunter says he will focus on American policy settings and how it will affect inflation in Australia
Sarah Hunter, Assistant Reserve Bank for Australia, said late on Monday, that she will focus on American policy settings and how it will affect inflation in Australia. In addition, Hunter stressed that RBA will take a slow approach to price cuts.
Main quotes
February statement reflects that the RBA Council is more careful than the market on the risk of mitigation.
Focus on American policy settings and how it will affect inflation in Australia.
Family consumption in the quarter of December, not just temporary capture.
The link between RBA expectations and council policy decision is not mechanical.
Always risks and doubts about central expectations.
Looking to the future does not contradict the reliance on data.
RBA should take an aspirational approach to meet the mandate.
Market reaction
At the time of writing this report, AUD/USD pair is traded by 0.01 % a day for trade at 0.6382.
RBA common questions
The Australian Reserve Bank (RBA) determines interest rates and runs the monetary policy of Australia. Decisions are made by the Council of Governor in 11 meetings per year and allocated emergency meetings as required. The primary mandate in RBA is to maintain the stability of prices, which means an inflation rate of 2-3 %, but also “… to contribute to the stability of the currency, full employment, economic prosperity and the welfare of the Australian people.” Its main performance is by raising or lowering interest rates. The relatively high interest rates will enhance the Australian dollar (AUD) and vice versa. Other RBA tools include quantitative relief and tightening.
While inflation was always believed to be a negative agent of currencies because it reduces the value of money in general, the opposite was already the case in the modern era with the relaxation of capitalist controls across the border. Moderate higher inflation now tends to lead the central banks to set their interest rates, which in turn has an impact on attracting more capital flows from global investors looking for a profitable place to keep their money. This increases the demand for the local currency, which in the case of Australia is the Australian dollar.
The total economy data is healthy and can have an impact on the value of its currency. Investors prefer to invest their capital in safe and growing economies instead unstable and shrink. Increased capital flows increased total demand and local currency value. Classical indicators, such as gross domestic product, PMIS manufacturing, employment services, and consumer morale surveys on AUD. The strong economy may encourage the Australian Reserve Bank to set interest rates, which also supports AUD.
Quantitative mitigation is a tool used in maximum situations when low interest rates are not sufficient to restore credit flow in the economy. QE is the process that the Australian Reserve Bank (AUD) is printed for the purpose of buying assets-usually government or companies-from financial institutions, and thus providing them with the intensity of the need. QE usually leads to the weaker AUD.
The quantitative tightening (QT) is the opposite of QE. It is implemented after QE when the economic recovery is ongoing and inflation begins to rise. While the RBA Reserve Bank (RBA) purchases government bonds and companies from financial institutions to provide them with liquidity, RBA in QT stops buying more assets, and stops re -investing the maturity manager on the bonds that he already holds. It will be positive (or bullish) for the Australian dollar.
