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RBA meeting preview: 4 questions ahead of this month’s meeting

We look at four big questions ahead of the final RBA meeting for the year.

When is the RBA meeting next?

The Reserve Bank of Australia (RBA) will meet for the final time this year, this Tuesday the 7th of December, 2021.

4 key questions for this RBA meeting?

What will the RBA likely do with policy?

It's all but certain the RBA keeps policy unchanged at this meeting. After scrapping the yield curve target last month, the cash rate will likely stay on hold at 0.1%, and QE - which is to be reviewed at the following meeting in February - to be kept at $4 billion per week. There will be some interest in whether the RBA makes any comment about the need for future policy tightening, especially with the markets conscious of a potentially aggressive taper from the central bank, and the expectation for three or four rate hikes in 2022. The RBA has pushed back in recent commentaries on the need for such hawkish policy, despite recognising at its last meeting it could achieve its employment and inflation goals sooner than earlier thought.

Could the RBA make a hawkish pivot?

Despite some jitters about growth, inflation risks remain significant globally, and a major factor driving the pricing in of total global monetary policy. Recently, US Federal Reserve Chairperson Jerome Powell made a significant about face regarding inflation in the US, suggesting it's more persistent than the Fed had expected, and that the phrase transitory ought to be retired as a way of describing it. The RBA has been very dovish when it comes to inflation and the need for aggressive policy to rein it in - which might be justified given the lower levels of inflation in Australia, which has fallen back within its target range and is broadly tipped to fall. More than likely, the RBA will reaffirm its belief that the cash rate will remain unchanged until late 2023 or 2024.

What could the Omicron variant mean for the Australian economy?

Global markets have been thrown into some disarray in the past two weeks, as the new Covid-19 variant, Omicron, raises uncertainty about future economic growth. There remains many unanswered questions about the variant, however it is feared that it may prove resistant to vaccines, could be more infectious, and as such, lead to new lockdowns and restrictions around the world. Several cases have already emerged in Australia, prompting some tightening of overseas travel from authorities, although as yet, new lockdown measures have not been flagged. Given the science is not yet well known, the RBA may stay reticent on the subject of Omicron. But the markets will remain attuned to weather the central bank highlights the virus as a risk to its economic and policy outlook.

How could the AUD/USD react to the RBA meeting?

The AUD/USD has experienced increased volatility recently, as fears about Omicron and global growth, and tighter US Fed policy, weaken market sentiment. The pair remains in a clear downtrend, and has broken several key levels of technical support, to now be testing support around the 0.7000 handle. It’s also deeply in oversold territory, however has yet to show clear signs of bottoming out, with the indicator still pointing to the downside. Risk-reward may right now be skewed towards a brief pop for the AUD/USD, with technical resistance and the upper bound of the trend channel currently around 0.7060/70. Any rally appears likely to be faded however, as growth fears and a stronger greenback weaken the appeal of the AUD.

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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