The Reserve Bank of Australia kept the interest rate at a record low of 0.1 percent for the fourteenth consecutive month, according to the decision at its January 2022 meeting. This was in line with expectations and market consensus.
Policymakers decided to end the 275 billion Australian dollar bond-buying program, with the last purchases to take place on February 10.
Reserve Bank of Australia waits for higher inflation
However, the bank's board stressed that stopping quantitative easing does not mean an interest rate hike anytime soon, as the central bank is still willing to be patient.
The board will not raise interest rates until inflation is in the 2-3 percent range. Inflation has picked up, but it is too early to conclude that it is permanently in the target range, the central bank added in a statement to the decision.
The committee mentioned that wage growth in Australia remains modest and it will likely be some time before it moves at a pace consistent with inflation. The bank reiterated that the omicron coronavirus mutation is unlikely to derail the economic recovery.
USD giving back gains?
The AUD/USD exchange rate seems to be once again defending the potential support level at 0.7000. Thus, a formation resembling a double bottom may be forming, as the AUD/USD pair also tested the mentioned level in early December.
The US dollar seems to be giving back the earlier potential gains and is weakening against the major currencies. In March, the Federal Reserve may raise interest rates in the US by 50 basis points. This would be the first such move since 2000, and there could be a total of five hikes this year. It seems, therefore, that USD would need new arguments for further appreciation, as the current ones may resemble implementation of a well-known proverb - buy the rumours, sell the facts.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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