BondAsia: RBA Raises Interest Rates by 25 Basis Points as Expected, Australian Dollar Reacts Calmly

On March 17, the Reserve Bank of Australia announced a 25 basis point interest rate hike, marking the second rate increase this year after a 25 basis point hike in February. Currently, the RBA’s benchmark interest rate has risen from 3.85% to 4.10%. In its statement, the RBA stated that the Middle East situation “could potentially push up global and domestic inflation under various scenarios,” with short-term inflation expectations rising. Inflation may remain above the target level for some time, and there is a “material risk” that inflation will stay above the target in the long term. The RBA said it will “take all necessary measures” to achieve its inflation and employment goals, and that monetary policy is fully prepared to respond to developments. It also emphasized significant uncertainties in the economic and inflation outlook, requiring close attention to data, evolving market conditions, and risks in decision-making.

Additionally, Morgan Stanley maintains its forecast that the Federal Reserve will resume rate cuts in June and cut again in September, despite rising oil prices leading traders to reduce bets on rate cuts this year. “We still expect action in June and September, though there is a risk of delay,” Morgan Stanley Chief U.S. Economist Michael Gapen said Monday during a Bloomberg roundtable in New York. This forecast contrasts with market expectations that strongly rule out rate cuts, as rising oil prices following the Iran conflict could reignite inflation and hinder the Fed’s ability to ease monetary policy. Of course, the Fed might delay its first rate cut until September or even December, any of which could push the next cut into 2027, Gapen added. “The main risk we see is a delay, and the longer the Fed waits, the more likely it is to need an additional rate cut.”

Key data to watch today include the Eurozone March ZEW Economic Sentiment Index, Germany March ZEW Economic Sentiment Index, and the US February Existing Home Sales Monthly Change.

Gold/USD

Gold traded in a narrow range yesterday, closing slightly lower on the daily chart, with the spot price around 5030. The ongoing decline in expectations of Fed rate cuts is a primary factor pressuring gold. However, safe-haven demand remains strong, and the high level of the US dollar index, along with technical buying near the 5000 level, limits further downside. Today, focus on resistance around 5100, with support at approximately 4950.

USD/JPY

USD/JPY declined yesterday, retreating to the 159.00 level, with the spot price around 159.40. Besides profit-taking weighing on the currency, the retreat of the dollar index from high levels due to the easing of hawkish Fed expectations also contributed to the weakening. However, the Bank of Japan’s reduced expectations for rate hikes limited the downside. Today, watch for resistance near 160.50, with support around 158.50.

AUD/USD

The Australian dollar rebounded sharply yesterday, nearly recovering all of the previous day’s losses. Besides short covering providing some support, the retreat of the dollar index from high levels was an important factor supporting the rebound. Expectations of further rate hikes by the RBA also provided some support. In Asian trading hours, the RBA raised rates by 25 basis points as expected, and the AUD responded modestly, trading around 0.7070. Today, watch for resistance near 0.7150, with support around 0.7000.