Reserve Bank of Australia’s Unexpected Decision and its Ripple Effect on Global Markets

By Tomasz Wisniewski|

Published: August 01 2023, 05:59 GMT+0

Reserve Bank of Australia’s Unexpected Decision and its Ripple Effect on Global Markets

Good morning and welcome to Tuesday’s market update. Today, the financial community was taken aback by a somewhat unexpected turn from the Reserve Bank of Australia. While the whispers around trading desks hinted at a 25 basis point hike, pushing rates to 4.35%, the RBA opted for a different path. Instead of tightening, they have maintained the rates at their current 4.1%.

So, what prompted this move? According to the bank’s official statement, this decision offers the RBA more time to gauge the effects of their previous rate hikes on the economy. They assert that the rate hikes so far are bridging the gap to strike a balance between demand and supply in the economy. And while they hint at a continuation of this strategy, they’ve given themselves some breathing room to monitor the situation closely.

Now, shifting gears to the broader economic calendar for the day, we are still awaiting some pivotal data from the US. Specifically, the eyes are on the ISM Manufacturing PMIs and the JOLTs job openings. These could provide further insight into the health and trajectory of the American economy.

Reflecting on yesterday’s releases, we received a pleasant surprise from China. The manufacturing PMIs outperformed expectations, hinting at a more robust industrial backbone than anticipated. However, a tad overshooting the target was the core CPI flash estimate from the Eurozone, with a result of 5.5% against an estimated 5.4%. While not a substantial difference, in the world of finance, every decimal counts.

But, what does all this mean for currencies? The RBA’s decision has, unsurprisingly, put the Australian dollar in a tough spot, pushing it down the ladder to be the day’s weakest performer. Leading the currency pack, however, are the American dollar and the Euro, both finding themselves comfortably in the green.

Taking a moment to evaluate the indices, there’s a noticeably positive air. After an upbeat Friday and Monday, the majority of the indices are inching closer to their long-term highs, signaling optimistic forward momentum.

Yet, not everything is enjoying the same sunny outlook. The commodities market witnessed a rollercoaster of a day yesterday. While precious metals experienced a tumultuous journey of ascents followed by declines, oil presented a contrasting narrative. The black gold remained resilient, showcasing an unwavering uptrend.

Lastly, as we continue to navigate the US earnings season, several heavyweights are set to unveil their cards today. Market participants will be tuning in closely to Pfizer, AMD, Caterpillar, Starbucks, and Uber. The results from these industry titans could very well set the tone for the markets in the coming days.