The Reserve Bank of Australia (RBA) took a surprising step last week by reducing the Cash Rate by 25 basis points to 4.10% from 4.35%. This move, viewed as hawkish by market participants, underscores the bank's data-dependent approach, particularly concerning the AUD/USD currency pair. Meanwhile, the Australian jobs market continues to demonstrate resilience, with job growth in January far exceeding market expectations. Against this backdrop, inflation has cooled more rapidly than anticipated, and wage pressures have lessened, casting a spotlight on the RBA's future monetary policy decisions.
The RBA highlighted several key factors influencing its decision to lower the Cash Rate. Inflation has decelerated faster than expected, providing some relief to consumers and policymakers alike. Additionally, wage pressures have eased, and growth in private demand remains subdued. These factors contributed to the RBA's stance on maintaining a data-dependent approach, effectively putting any further easing measures on hold in the immediate term.
Across the Tasman Sea, the Reserve Bank of New Zealand (RBNZ) has taken a contrasting path, adopting a dovish stance. Last week, the RBNZ implemented its third consecutive 50 basis point rate cut, bringing the Official Cash Rate (OCR) down to 3.75% from 4.25%. This move aligns with the RBNZ's projections for a lower OCR this year compared to November 2024 estimates, which reflects market pricing trends. The bank indicated that additional policy easing could be possible if economic conditions continue to evolve as projected.
As both central banks navigate their respective economic landscapes, currency traders have kept a close watch on the AUD/NZD pair. Recently, this pair has faded from long-term daily resistance at NZ$1.1175 and dipped below daily support at NZ$1.1088. However, the area between NZ$1.1040 and NZ$1.1074 is anticipated to serve as robust demand, given its stability since February 18.
The Australian economy's performance remains under scrutiny, particularly in light of its tight labor market. In January, jobs growth surged by 44,000, significantly surpassing market expectations of a 20,000 increase. RBA Governor Bullock emphasized this point in a recent press conference, noting that the jobs market remains a critical factor in shaping monetary policy decisions.
Market participants are now turning their attention to tomorrow's release of Australian Consumer Price Index (CPI) inflation data at 12:30 am GMT. Current estimates for the year-on-year CPI print range between 2.9% and 2.1%. This data will be pivotal in shaping investors' expectations for future interest rate movements.
The broader market consensus anticipates a total of 54 basis points worth of rate cuts this year. The first of these cuts could occur as early as the RBA's next meeting in April, reflecting the central bank's commitment to responding to evolving economic conditions.
The RBA's recent policy adjustment has underscored its commitment to a data-driven approach, leaving market participants keenly observing any shifts in economic indicators. The unexpected cooling of inflation and easing wage pressures have provided some breathing room for policymakers as they navigate complex economic challenges.