Another central bank with a cycle of hikes

21.06.2022 10:33|Forex conotoxia.com

Trading on CFDs is provided by Conotoxia Ltd. (CySEC no.336/17), which has the right to use the Conotoxia trademark. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 80.77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

The Reserve Bank of Australia has joined the ranks of central banks that are trying to control rising inflation by raising interest rates. A cycle of hikes has already been initiated by the following, among others: Federal Reserve, Bank of England, Bank of Switzerland, and soon the European Central Bank will also join the ranks.

The Reserve Bank of Australia raised the spot rate by 50 basis points to 0.85 percent at its June 2022 meeting. The action could start Australia's first cycle of interest rate hikes in 12 years. The central bank's board said that massive monetary support is no longer needed due to the strength of the economy and current inflationary pressures. In addition, the labor market is strong as employment has increased and the unemployment rate was the lowest in nearly 50 years. Policymakers cautioned that further monetary tightening is on the agenda and the extent and timing will depend on incoming data and the Board's views on the outlook for inflation and the labor market, according to the RBA meeting minutes released.

The committee reiterated its determination to do whatever is necessary to ensure inflation returns to target while noting the global outlook remains shaken by the war in Ukraine and its impact on energy and commodity prices. The RBA's actions may also prevent the Australian dollar from weakening too much, which could further import inflation. The AUD has lost 4.3 percent to the USD since the start of the year, one of the smaller losses of the world's major currencies. By comparison, the Japanese yen has weakened by almost 15 percent.

Staying with the yen and monetary policy, the Bank of Japan remains the last of the world's major banks not to raise interest rates for now. However, the most interesting situation there is in the bond market, where the BoJ is defending the market against rising bond yields at all costs. The maximum level that is allowed is 0.25 percent on 10-year bonds. Thus, the number of institutions that want to play to break the Bank of Japan is growing. If this were to happen, the yen could definitely strengthen.


Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)

Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 80.77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.


See also:

Jun 20, 2022 11:03 am

Another hot week in financial markets

Jun 15, 2022 12:11 pm

A historic Fed decision

Jun 14, 2022 12:06 pm

Markets on the verge of full capitulation

Jun 13, 2022 9:06 am

The landscape in the markets after the inflation data

Jun 10, 2022 3:34 pm

U.S. inflation hits 8,6 percent

Jun 10, 2022 11:41 am

ECB close to starting a soft cycle

Start chat