After falling marginally from its five-month high versus the US dollar at the end of last week, the Australian dollar (AUD) gained again on Monday (April 4) on the back of strong economic data, rising inflation expectations and continuing strength in commodity prices.
The AUD/USD exchange rate rose to 0.7522 during intra-day trading on Monday before closing at 0.7509, 0.14% higher than the previous close.
Last week, data from real-estate consultancy firm CoreLogic (CLGX) showed that house prices in Australia continued to grow, although these have slowed significantly to 16.3% year-on-year in March.
Similarly, data released by the Australia and New Zealand Banking Group (ANZ) showed that Australian job advertisements had risen by 0.4% month-on-month, indicating strong employment gains that could add pressure to wages growth.
Aggressive rate hikes on the cards
Markets have already started to price in aggressive interest-rate hikes by the Reserve Bank of Australia (RBA) from June, even though the central bank itself has yet to move from its dovish stance of remaining “patient” before it hikes rates.
With the central bank set to meet on Tuesday (April 5), the Australian dollar (AUD) – commonly known as the Aussie – may see a fall according to experts if it sticks to its stance of waiting patiently.
Sydney-based bank and financial services adviser Westpac expects the RBA to continue to remain patient and does not expect any change in its stance till August.
Economists divided on RBA’s position
Sean Callow, senior currency strategist at Westpac, said in a note: “Westpac’s view is for no change until August. If the word ‘patient’ is removed, market pricing for a hike in June, for example, will become even more aggressive.
“Even ahead of the meeting, market pricing is for a cash rate of 1.8% by December 2022 – a long way from Westpac’s 0.75% forecast. Perhaps a surprise from the RBA will knock the AUD/USD pair from its multi-day orbit of 0.7500.”
Others, however, expect the RBA to raise rates aggressively from June, which will further fuel the Aussie’s strength.
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Marcel Thieliant, senior Australia, New Zealand and Japan economist at Capital Economics, said: “Most of the measures of inflation expectations that the RBA is tracking have risen to multi-year highs. Admittedly, this doesn’t seem to have any immediate implications yet.
“While union officials’ inflation expectations have picked up, the average annualised wage increase in newly approved enterprise-bargaining agreements was 2.7% in Q4 – a touch slower than the 2.8% average in the five years before the pandemic.
“We still expect the Bank to refrain from tightening policy in May, when federal elections are held… Once the election and any decisions about the bond-purchase programme are out of the way, we expect the Bank to start hiking in June.”