- RBA Governor Lowe announces major changes at RBA Board
- US inflation expected to decline
The Australian dollar was sharply higher on Wednesday but could not consolidate these gains. AUD/USD is unchanged in Europe, trading at 0.6691.
Will RBA Governor be replaced?
Reserve Bank of Australia Governor Lowe spoke on Wednesday and announced key changes to the RBA Board. The moves were in response to a scathing review that called for major changes in how the RBA Board operates.
Lowe announced that the RBA Board would meet eight times a year rather than the current eleven times, although each meeting would be longer. The RBA Governor will hold a press conference after every meeting to explain the Board’s interest rate decision. As well, the rate statement announcing the decision will be issued by the Board, rather than the governor as is currently the case.
The RBA and particularly Governor Lowe have faced intense criticism over their rate decisions, in particular Lowe’s promise as late as November 2021 that he would not raise rates until 2024. This resulted in households borrowing heavily, only to be whacked with an aggressive rate-tightening campaign in early 2022. Lowe later claimed that he had not made such a promise but the damage was done and it’s a strong possibility that he may be replaced as RBA Governor- a decision could be made in the next few days. Lowe has indicated he would be happy to remain at the helm of the RBA.
Lowe’s speech also touched on policy but didn’t add anything new. Lowe said that the full effects of high rates were yet to be felt and it remained to be seen if more hikes would be required. Lowe said the situation remains complex, which is very much the case both for the Australian economy and his role as Governor.
US inflation expected to drop
All eyes are on the US June inflation report, which will be released later on Wednesday. Headline inflation is expected to drop to 3.1% y/y, down from 4.0%. That would be good news, but the Fed will be more interested in how the core rate performs. Core CPI is expected to fall from 5.3% y/y to 5.0%, and on a monthly basis from 0.4% to 0.3%. If the core rate is higher than expected, we could see market pricing rise with regard to a September hike. A rate hike at the July 27th meeting is widely expected, but the key question is what is the Fed planning after that, and today’s inflation release could help answer that question.
- AUD/USD is testing support at 0.6666. This is followed by support at 0.6623
- 0.6732 and 0.6838 are the next resistance lines
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