On September 29, the Reserve Bank of Australia announced its rate decision, raising the benchmark rate by 25 basis points to 4.6%. This marks the fourth rate hike this year.
According to the policy statement released by the RBA, inflation remains the core reason driving monetary policy adjustments. The statement noted that inflation remains stubbornly high, with some signs of rising inflation emerging in August. According to data from the Australian Bureau of Statistics, Australia's second-quarter inflation rate stood at 3.9%, far above the central bank's 2% target. Although this represents a slight decline from 4.1% in the first quarter, the prevailing view guiding the central bank is that the absolute level of inflation must reach the target rather than merely showing a downward trend. As a result, the RBA still has the motivation to continue raising rates.
The policy statement also mentioned that global energy prices are far higher than previously expected, and demand related to artificial intelligence is pushing up prices of global technology-related products. These are currently the two most closely watched sectors in the market: one is the U.S.-Iran issue affecting international oil prices, and the other is AI artificial intelligence affecting chips, storage, and other technology products. Both have driven up prices across related industrial chains, indirectly pushing CPI higher.
Regarding the U.S.-Iran issue, the latest news shows that U.S. President Trump said in an interview that he expects negotiations with Iran to continue this week. Iran has also stated that it could reopen the Strait of Hormuz within seven days, provided the United States agrees to multiple conditions proposed by Iran, such as unfreezing sanctioned funds and halting attacks on ports. As of today's European session, U.S. crude oil WTI is quoted at $93.3 per barrel. It has remained at a relatively high level without forming a decisive long bearish candle, meaning that major market funds are not strongly confident about optimistic outcomes from the U.S.-Iran negotiations.
Figure 1: U.S. Crude Oil WTI Price Trend Overlaid with Australia's Quarterly Inflation Data - ATFX. The blue line in the chart is Australia's inflation rate curve, which shows strong resonance with the U.S. crude oil WTI price trend. In the third quarter of this year, U.S. crude oil prices rose from an opening price of $69.98 to an intraday high of $106.75, before finally closing near $93 (forecast value), with the overall trend leaning upward. Based on this, the probability that Australia's third-quarter inflation rate exceeds the previous reading of 3.9% is relatively high, and it may even reach a new high in more than two years.
Against the macroeconomic backdrop of persistently high inflation, the RBA's path of tightening monetary policy will not change, and the Australian dollar will continue to receive bullish support. RBA Governor Bullock stated at a press conference that multiple inflationary pressures make the current situation very difficult, and that the unemployment rate can be gradually raised without causing job losses. Australia's unemployment rate in August this year was 4.6%, below the full employment standard of 5%, leaving room to implement tightening monetary policy. According to Bullock's remarks, in order to curb potential high inflation, she is willing to sacrifice some employment data to achieve the target. This resolute stance is conducive to boosting the Australian dollar's medium-term trend.
It should be noted that the Federal Reserve has also already raised rates once in September, and its monetary policy is likewise biased toward tightening. The short- and medium-term trend of AUDUSD leans downward, which is related to the continued strengthening of the U.S. dollar index amid rate hikes. Therefore, when assessing the short- and medium-term trend of AUDUSD, the impact of the Federal Reserve's monetary policy should be given key consideration. The RBA's rate hikes will only offset part of the Fed's policy effects within a limited range.
ATFX Risk Warning, Disclaimer, and Special Statement: Markets carry risk, and investment requires caution. The above content represents only the analyst's personal views and does not constitute any trading recommendation. Please do not treat this report as the sole reference basis. At different times, the analyst's views may change, and updated content will not be announced separately.
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