Aussie Dollar Rises Despite Central Bank Not Acting

The Australian central bank's (RBA) policy meeting this morning yielded no new results. However, currency exchange rates were boosted by rising commodity prices.

The Australian dollar strengthened about 0.2 percent to its highest since January around 0.7280 against the US dollar. The Australian central bank's (RBA) policy meeting this morning provided no new clues on interest rates. However, currency exchange rates were supported by rising commodity prices. Market sentiment has also improved slightly amidst Russia-Ukraine dialogue efforts.

AUD/USD Daily chart via TradingView

The RBA kept interest rates steady at 0.1 percent, while expressing optimism about the recovery of the Australian economy after the Omicron turmoil. The RBA underscored the unemployment data which is now at a record low of 14 years at 4.2 percent. The central bank predicts the unemployment rate will fall again to below 4 percent this year.

RBA governor Philip Lowe had little to say about the Russia-Ukraine war. He said, "The global economy continues to recover from the pandemic. However, the war in Ukraine is a major source of renewed uncertainty. Inflation in several parts of the world has increased sharply due to large increases in energy prices and disruptions to supply chains at a time of high demand. The prices of many commodities have increased further due to the war in Ukraine. Bond yields have increased over the past month and expectations of future policy interest rates have increased."

However, the RBA is still reluctant to raise interest rates. Salary growth has picked up, but the RBA rates it as still within pre-pandemic ranges. Inflation has accelerated faster than expected, but they perceive Australia's inflation rate to still be lower than many other countries. The RBA also continues to believe that the inflation rate will slow down again next year.

At the time of writing (1/March), the price of Brent and WTI crude oil was holding around USD 103 and USD 99 per barrel, respectively. The price of COMEX iron ore has decreased, but the contract price for the same commodity on the Dalian Commodity Exchange and Singapore Exchange has continued to increase. This situation is supportive for commodity exchange rates such as the Australian dollar.