RBA Signals Rate Cuts as Inflation Slows; Housing Prices Fall After 2 Years

The Reserve Bank of Australia (RBA) is considering future monetary policy easing as inflation shows signs of gradual decline, according to minutes from its December meeting. The RBA kept its cash rate steady at 4.35% and offered little guidance on potential rate cuts. Policymakers acknowledged inflation had slowed but remained above the 2–3% target and was unlikely to meet this range before 2026.

While weak economic growth and slowing wage gains reduced inflationary risks, strong consumer spending and a robust labor market maintained concerns about price pressures. The RBA indicated that it might ease rates if inflation trends aligned with targets, though analysts expect any cuts to begin by mid-2025 and proceed cautiously.

In Australia’s housing market, property prices experienced their first monthly decline in nearly two years in December, reflecting affordability challenges due to high mortgage rates and rising listings. Data from CoreLogic showed a 0.1% drop nationwide, with Sydney and Melbourne leading declines at 0.6% and 0.7%, respectively, while other cities saw modest gains. Despite the dip, 2024 ended with a 4.9% annual increase, adding roughly A$38,000 to median home values. Sydney’s median price reached A$1.2 million. The total value of residential properties grew by A$851 billion in the year leading up to September, hitting A$11.3 trillion. Analysts suggest lower rates may not spur significant price growth, as interest rates remain elevated. A Reuters poll projects modest annual price gains of 5% in 2025 and 2026, supported by population growth and limited housing supply.

The U.S. dollar hovered near a two-year high as traders awaited key economic data this week, particularly December’s nonfarm payrolls report, for insights into the Federal Reserve’s monetary policy outlook. Investors are focused on the U.S. jobs report to assess the economy’s health, while several Fed policymakers are scheduled to speak, likely reinforcing their stance that efforts to curb inflation remain ongoing.

The dollar has gained strength due to expectations of fewer rate cuts this year. Additionally, uncertainty surrounding President-elect Donald Trump’s policies, including tariffs and tax cuts, has provided safe-haven support for the dollar. Analysts remain cautious, suggesting the dollar’s upward trend may continue amid ongoing policy uncertainties.

Richmond Federal Reserve President Thomas Barkin emphasized the need to maintain restrictive interest rates until inflation shows clear signs of returning to the 2% target. Speaking at the Maryland Bankers Association, Barkin noted upside risks to inflation due to economic resilience and potential wage pressures. Barkin projected steady economic growth driven by consumer spending and business optimism but warned that trade and immigration policies could add to inflation risks. He anticipated labor markets would lean toward hiring rather than layoffs, maintaining momentum in the economy while leaving inflation risks elevated.

U.S. manufacturing showed signs of improvement in December, with production rebounding and new orders rising, although growth remained subdued. The ISM Manufacturing PMI climbed to a nine-month high, indicating progress, but industry commentary reflected concerns over slowdowns and reduced volumes. None of the six largest manufacturing sectors reported growth, highlighting persistent challenges. Businesses are preparing for Trump’s administration, which is expected to implement tax cuts and deregulation, potentially boosting economic activity. However, looming tariffs pose risks of higher raw material costs, adding to inflationary pressures and creating uncertainty for future growth.

This week is set to be eventful with U.S. labor data and Federal Reserve minutes. Friday’s employment report is expected to show 154,000 jobs added in December, with unemployment steady at 4.2%. Recent job data has been volatile due to disruptions, but November’s 227,000 gain signaled resilience. Ahead of Friday’s report, updates on job openings, private hiring, and weekly claims will provide additional insights into labor market trends.

On Wednesday, the Fed will release minutes from its December meeting, where it implemented a third consecutive 25-basis-point cut. Analysts expect the minutes to reveal divided opinions on policy direction, particularly regarding fiscal, trade, and immigration policies under the new administration. Several Fed officials, including Governors Cook and Waller, are also scheduled to speak, potentially influencing market sentiment.

Data for Technical Analysis (1H) CFD AUD/USD

Resistance : 0.6233, 0.6235, 0.6240

Support : 0.6223, 0.6221, 0.6216

1H Outlook

Source: TradingView

Buy/Long 1 If the support at the price range 0.6215 - 0.6223 is touched, but the support at 0.6223 cannot be broken, the TP may be set around 0.6236 and the SL around 0.6211, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 0.6233 - 0.6241, TP may be set around 0.6248 and SL around 0.6219, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 0.6233 - 0.6241 is touched, but the resistance at 0.6233 cannot be broken, the TP may be set around 0.6223 and the SL around 0.6245, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 0.6215 - 0.6223, TP may be set around 0.6205 and SL around 0.6237, or up to the risk appetite.       

Pivot Points Jan 6, 2025 01:44AM GMT