Australian Cash Rate; Virus Risk Likely to Influence Decision

The Cash Rate is the interest rate that the Reserve Bank of Australia (RBA) charges commercial banks for a loan. This operation provides a bulk of liquidity to the banking system. Short-term interest rates are the paramount factor in currency valuation as it is highly correlated with the economic outlook because their changes can have an impact on both inflation and recession.

The core objective of RBA is to set lay down policies aimed at achieving stable inflation, maintaining financial stability, full employment, and contributing to the economic development and wealth of the inhabitants of Australia.

Australia’s central bank is expected to culminate the pause between building economic momentum and faster price gains as well as renewed risks of COVID-19 (Omicron) in its last meeting of the year.

According to Paul Bloxham, Chief Australian economist for HSBC Holdings Plc; the economy is re-opening and a faster than expected rebound in activity is feasible even with the risk of Omicron variant which he suggests is too early to determine its implications.

The Reserve Bank of Australia last month held its Official Cash Rate at 0.10% after it was changed to 0.25% in the month of November 2020, as early glimpses of a rising rate appear more likely, of which Philip Lowe, Governor of the Reserve Bank of Australia is currently using to spur wage rises and help return inflation to its target rate of 2% to 3%. As it is widely expected to see the bank scale back the weekly pace of purchases from the current A$4 billion (2.8 billion) amid an improved outlook, supply constraints in the local bond market, and signs that the Federal Reserve will quicken its taper decision.

Across-board, a lower Cash rate will warrant recovery to the broader economy by improving cash flow, encouraging spending and investment, which will increase economic activity and boost employment.

However, with the unemployment rate at 5.2% having shed 46,300 jobs, and even as participation rose slightly to 64.7% from 64.5% last month, Economist expects the Australian economy to grow by 4.5% by the end of 2021.

Regardless, traders should brace themselves up for a period of high volatility as the Cash Rate report often have a great impact on the FOREX market. An increase in Cash Rate will usually strengthen the AUD (Aussie Dollar), while its decrease will usually weaken the AUD (Australian Dollar).

Traders should always be aware that volatile markets provide great opportunities for making profits, as the increase in volatility can cause market swings for traders to capitalize on.

Traders can take advantage of the volatility presented by the Australian Cash Rate release by trading currency pairs that include AUD (Australian dollar), the pairs include AUDUSD, AUDCAD, AUDCHF, AUDJPY, AUDNZD, etc. With the ACT brokers trading platform (https://actmarkets.com/) with the best spread and trade execution.

Time Schedule for the next Cash Rate Report:

Date: Tuesday.December 7th, 2021.

Time: 4:30am (GMT + 1)

Author:
Francis Idowu is a Forex Dealer, Financial market analyst and writer, Data Analyst, and Financial Market Strategist with a background in Economics. He specializes in market strategies, Forex fundamental and technical analysis, and has spent over two years as a financial market contributor, observer, and trading coach. He is well known for his informative analysis of the global economy, fiat currency, commodities, Stocks, Indexes, Futures, and Options markets. He held a Bachelor's degree in Economics and Diploma in Structured Programming and Data processing.

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