The RBA expected to keep policy unchanged at its December meeting

By Kyle Rodda10:48 (UTC), 6 December 2024

The RBA is set to meet for the final time in 2024, with the central bank handing down its decision at 2:30PM on Tuesday the 10th of December.

Australian GDP data reveals weaker than expected growth

Australian GDP data reaffirmed anaemic economic activity. The data revealed the economy is slowing, with the lower than expected 0.3% quarterly growth rate contributing to an annual expansion of 0.8% - the lowest year-over-year growth since the depths of the pandemic. It also showed the economy is being propped-up by net overseas migration and public demand stemming from programmes like the NDIS, with per-capita growth in recessionary territory for the seventh consecutive quarter. Households demand is also weak, with consumption flat from the previous quarter as higher interest rates and cost of living pressures impact spending.

_{(Source: ABS)}

Australian inflation data signals ongoing price stickiness

Australia’s inflation data for October revealed mixed signals. The headline Consumer Price Index (CPI) remained steady at 2.1% year-on-year, the lowest level since mid-2021, signaling progress in moderating overall price pressures. However, the trimmed mean CPI—a measure that excludes volatile items—rose to 3.5%, up from 3.2% in September, indicating persistent underlying inflationary pressures. A significant contributor to the subdued headline figure was the impact of government energy subsidies, with the RBA likely to “look through” these distortions and emphasise the stubbornness of underlying inflation as it remains above the RBA’s 2-3% target band.

_{(Source: ABS)}

RBA unlikely to shift rates, markets price-in early 2025 cut

The RBA is likely to keep the cash rate unchanged at this meeting, with the markets ascribing a trivial probability of a cut. Recent commentary from the RBA has emphasized its caution about upside risks to inflation, framing their guidance around how aggregate demand continues to outstrip aggregate supply, despite the weak growth conditions. The September GDP figures suggest that this imbalance could be narrowing quicker than previously thought, leading the markets to pull forward the timing of the first rate cut to April, with February now considered a nearly 50% probability.

_{(Source: ASX)}

The markets will be looking for any tweaks to the phrase “the Board is not ruling anything in or out” as to whether the RBA is shifting its policy bias towards reflecting looming rate cuts in light of weak demand and despite elevated trimmed mean inflation.

The AUD/USD remains in a downtrend amidst geopolitical risk

The Australian Dollar continues to trade primarily as a proxy for trade tensions between the US and China and the expected impact on Australia’s economy from weaker Chinese demand. The recent GDP figures put further downward pressure on the AUD/USD as the markets brought forward the timeline of RBA rate cuts, with yield differentials widening as the markets question the capacity for the US Federal Reserve to cut interest rates by as much as previously thought.

From a technical perspective, the AUD/USD remains in a downtrend, with price action carving out a clear downward trend channel. There’s signs of a bullish divergence on the daily RSI; however the lower-lows on the charts show the downside skew to price action. 0.6400 is a short-term level of technical support, while the year-to-date low around 0.6350 looms as a very significant level. Meanwhile, the 20-day moving average and downward sloping trendline support present as possible resistance levels.

_{(Source: Trading View)}
(Past performance is not a reliable indicator of future results)

The RBA expected to keep policy unchanged at its December meeting

Australian GDP data reveals weaker than expected growth

Australian inflation data signals ongoing price stickiness

RBA unlikely to shift rates, markets price-in early 2025 cut

The AUD/USD remains in a downtrend amidst geopolitical risk

References