The Australia's central bank (RBA) was today forced to announce the massive bond purchases to maintain its yield target. However, the dovish policy move did not dampen the market expectations.
It is especially for a faster RBA rate hike. The Australian dollar remained resilient with the AUD/USD pair has been consolidating at its highest range since July.
The RBA has expressed the reluctance to raise interest rates before all central bank targets are reached or around 2024. However, market participants are "willing to bet" On something.
They predict that the RBA will raise rates sooner. The most possible time is in 2022. That situation triggers another moment in the market.
The Yield Obligation is Raising
That market confidence has resulted in a jump in Australian government bond yields to more than 0.17% this week. That is although the RBA has set a target yield in the 0.1% range.
Consequently, the RBA was forced into action. The RBA this morning abruptly announced its government bond-buying operations dated April 2024 worth AUD1 billion ($746 million).
This was his first action since February 26, and managed to push the yield back to 0.12 percent. This is a clear signal that the RBA is ready to maintain its YCC (Yield Curve Control) target.
More importantly, that institution still believes that the interest rates will not rise until this bond target reaches maturity in 2024. That was said by Su-Lin Ong of Royal Bank of Canada
The Salary Growth is Low
It's a move that signals as well as much-needed action amid market jitters that have taken into account (interest rate) hikes many times starting in the third quarter of the year.
The RBA governor Philip Lowe has repeatedly quelled speculation of a faster rate hike, as he said Australia's pay growth was still sluggish and there were few other sources of inflationary pressure.
The Australia's situation is different from a number of other countries that experienced a tremendous spike in inflation and need to raise interest rates to control it.
For example is neighboring New Zealand which started a rate hike earlier this month. On the other hand, the market remains on the rise to maintain speculation of an early RBA rate hike.
Market and Its Speculation about the Rate
The Analysts are now monitoring who will win amid the tug-of-war between the central bank versus this market. It may make a change in the overall situation right now.
Martin Whetton, the head of forex and fixed income strategy at Commonwealth Bank of Australia, said the April 24 bond in the market was only aud12 billion left.
That is especial after today's RBA action which was released in the market. "So, how long will the market continue to test it?" said Whetton in a note lately.
Elsewhere, The pound sterling is consolidating in a range that has been forming since the the release of UK inflation data a few days ago. The GBP/USD slipped following the release of disappointing retail sales data.
The Surprising UK Retail Sales Data Release
However, it was then dredged by preliminer Purchasing Managers' Index (PMI) data. As the news was written, GBP/USD was floating in the range of 1.3800s.
The UK retail sales report unexpectedly recorded the growth of -1.3 per cent (Year-on-Year) in September 2021. The figure was much lower than the consensus expectations pegged at -0.4%.
The Retail sales data for August was also revised down from +1.9 percent to -0.2%. The drastic decline in the retail sector is the result of rising energy prices and fuel scarcity throughout the country.
The retail sales data briefly rattled the pound sterling, as britain's central bank (BoE) may be reluctant to execute its rate hike plans amid an economic slowdown.
