AUD, CAD: markets focus on RBA, BoC rate decisions
Investors will be keeping across a couple of central bank decisions this week, starting with the Reserve Bank of Australia (RBA) on Tuesday. The RBA is expected to keep its cash rate at 4.35%.
The comments accompanying the decision will be all important too. The minutes published a couple of weeks ago revealed that RBA staff still expect an additional one or two increases over the coming quarters. Meanwhile, the Bank of Canada (BoC) should keep its overnight rate at 5%, leaving borrowing costs at a 22-year high. The BoC always said that it remains wary of inflationary risks and would not hesitate to move rates higher.
(AI Video Transcript)
The Reserve Bank of Australia
This week, the Reserve Bank of Australia (RBA) is expected to keep its cash rate at 4.35%, after raising it by 25 basis points last month. The RBA's decision will be accompanied by important comments, as they have hinted that there may be a few more rate increases in the future. The Australian dollar-US dollar exchange rate is currently down 0.42% for the day but has been gaining strength for the past four weeks. The currency's performance now hinges on the outcome of the RBA meeting and the release of Q4 gross domestic product (GDP) figures.
The recent rise in the Australian dollar can be attributed to factors such as high commodity prices, positive market sentiment, and a strong position from the RBA. Additionally, the weakening USD has also played a role, as the Federal Reserve is expected to cut rates by 125 basis points next year. This has boosted the AUD's strength.
The Bank of Canada
The Bank of Canada, on the other hand, is expected to keep its overnight rate at 5%, which is currently at a 22-year high. Despite concerns about inflation and the potential need for higher rates, the Canadian economy seems to be in good shape. The Consumer Price Index (CPI) for October stood at 3.1%. The US dollar-Canadian dollar exchange rate is up 0.21% for the day. Last week, the US dollar weakened due to economic data suggesting that the Federal Reserve would soon cut rates. This was supported by an increase in weekly unemployment claims, indicating less demand in the US labour market. In contrast, Canadian employment data surpassed expectations, strengthening the CAD.
Despite these developments, the Bank of Canada is not expected to change interest rates next week. In terms of the exchange rate, there seems to be a potential shift in direction as the pair has broken out of its previous upward trend.
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