CAFX Market Update 07/02/2024

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The RBA maintained its cash rate at 4.35% for a third consecutive meeting while retaining a slight tightening bias.

In the accompanying statement, the board cautioned that “a further increase in interest rates cannot be ruled out”. Despite acknowledging lower inflation, RBA Governor Michele Bullock emphasised that discussions about cuts will only occur once the board is convinced that inflation will align with the desired range.

The Statement on Monetary Policy (SoMP) revealed a downward revision in the RBA’s CPI forecast, projecting a return to the 2-3% range by December 2025 (and trimmed mean CPI by June 2025). Expectations suggest a potential rate cut to 3.2% by December 2025 or 3.9% by December 2024, implying less than two rate cuts this year.

At the time of writing, the AUD/USD pair is trading at 0.65265, up 0.39%.

The AUD/USD pair emerged as the strongest FX major yesterday. However, the pair faced pressure in holding levels above the crucial support of 0.6500 during the late European session.

The Hang Seng recorded its best day since July, surging approximately 4% following a Bloomberg report indicating discussions between top financial regulators and China President Xi regarding market conditions.

The US dollar retraced from its 11-week peak after registering two consecutive days of significant gains.

Earlier today, Cleveland Federal Reserve Bank President Loretta Mester cautioned against premature rate cuts, emphasising the potential risk of undermining the progress achieved. Though, Mester expressed confidence that if the economy evolves as anticipated, the Fed will gain that confidence later this year to ease rates.

With no major data releases today, markets will look forward to hearing from Fed officials Barkin and Kugler. 

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