Reserve Bank of Australia (RBA) has just issued a statement that the pace of raising interest rates has finally stopped!

 

The exchange rate between AUD and CNY rose at the opening in April 4, with an astonishing magnitude. Panda believes that there are mainly the following reasons.

 

Pause Interest Rate Hike This Month

 

Just this week, Reserve Bank of Australia announced the monetary policy decision in April, and the interest rate hike was finally suspended!​

 

In its latest statement, RBA said that at the meeting, the Board decided to leave the cash rate target unchanged at 3.60 per cent and the interest rate on Exchange Settlement balances unchanged at 3.50 per cent.

 

Source: RBA official website

 

This decision follows a cumulative increase in interest rates of 3.5 percentage points since May last year.

 

The Board recognizes that there is a lag in the operation of monetary policy and that the full effect of this substantial increase in interest rates is yet to be felt. 

 

The Board took the decision to hold interest rates steady this month to provide additional time to assess the impact of the increase in interest rates to date and the economic outlook.

 

Source: 9 News

 

The statement also noted that global inflation remains very high, but it is moderating overall, although services price inflation remains high in many economies. The outlook for the global economy remains subdued, with below-average growth expected this year and next. 

 

The statement also mentioned recent bank failures that have caused a huge uproar in global economic markets.

 

The recent banking system problems in the United States and Switzerland have led to volatility in financial markets and a reassessment of the outlook for global interest rates. These problems are also expected to lead to tighter financial conditions, which pose additional headwinds for the global economy.

 

In addition, the latest statement also pointed out the effects of the interests rate hike on people's lives.

 

Australia's economic growth has slowed and growth in the coming years will be  expected to be below trend.

 

There is further evidence that the combination of rising interest rates, cost-of-living pressures and a decline in housing prices is causing a sharp slowdown in household spending. While some households have substantial savings buffers, others are suffering a painful squeeze on their finances.

 

On the other hand, the labor market remains very tight. The unemployment rate is at its lowest level in nearly 50 years and underemployment is also low.

 

Many companies are still having difficulties hiring workers, although some have reported an easing of labor shortages and a slight drop in the number of job vacancies. Unemployment is expected to increase as economic growth slows.

 

Source: 9 News

 

But Anneke Thompson, chief economist at CreditorWatch, says that the relieve for borrowers may be temporary.

 

“The decision will give the RBA another month to assess the upcoming data before inflicting more pain on Australian borrowers. Overseas, central banks in Europe and the United States continue to raise interest rates to combat inflation, even as banks in their jurisdictions came under pressure. The Australian economy is particularly sensitive to rising interest rates, more so than in the US or Europe because of the large number of borrowers who have adopted or are about to switch to variable rates.”

 

PropTrack senior economist, Eleanor Creagh, also believes that the RBA's suspension of interest rate hikes this month is leaving room for further increases in the interests rate next month.

 

Australian dollar soars.

 

In addition to the monetary policy decision of RBA, the Australian dollar exchange rate is also of great concern.

 

Just on the morning of April 4, the exchange rate of AUD against CNY suddenly changed greatly, with a sudden surge from the opening of 1: 4.573 to 1: 4.668.

 

Source: Sina Finance

 

After a sudden surge at the opening, the exchange rate of the Australian dollar against the Chinese yuan began to fluctuate, but mostly around 1:4.67, with some changes up and down.

 

Source: Sina Finance

 

The last time the exchange rate of the AUD against the CNY broke through 1: 4.66 was in early March this year. On March 7, the AUD/CNY exchange rate plummeted significantly, dropping directly from 1.4:67 to 1:4.58, which is very similar to the sharp rise in April 4.

 

Source: Sina Finance

 

As for the reason for the sharp rise in the exchange rate between the Australian dollar and the Chinese yuan at the beginning of trading, Australian media have also provided some relevant analysis, which is highly likely related to the US dollar exchange rate.

 

Source: abc news

 

The main reason for the surge in the exchange rate of the Australian dollar is actually the sharp decline in the exchange rate of the US dollar. Because the latest data shows that after the slowdown in US economic growth, the US dollar exchange rate plummeted in an instant.​

 

The Federal Reserve said it was ending its aggressive policy of raising interest rates, while the latest US manufacturing data index was released, showing a significant decline in US manufacturing activity in March.

 

The Institute for Supply Management (ISM) said that the US manufacturing index PMI fell to 46.3 points in March 2023, the lowest value since May 2020.

 

Compared to 4.77 in February, a further decline of 1.4. This is also the fifth consecutive month that the US manufacturing index PMI has fallen below the threshold of 50 points. This represents that the US manufacturing industry is in a state of contraction, and the new orders received by the US manufacturing industry are continuously decreasing.

 

Source: npr

 

Another reason for the decline in the US dollar exchange rate is that rising borrowing costs and rising inflation have reduced demand for goods normally bought through credit.

 

Also, the collapse of Silicon Valley Bank and Signature Bank in the United States has brought pressure to the financial industry.

 

Banks have tightened lending standards, which could make it harder for small businesses and households to get credit.

 

Based on comprehensive analysis, a series of reasons have led to a significant decline in the US dollar, and the direct impact of the fall in the US dollar is the soaring Australian dollar exchange rate.

 

Source: Sina Finance

 

Although the exchange rate rose sharply this time, it still did not reach the highest level this year, and in recent times, the exchange rate of the AUD against the CNY is also in a volatile upward trend.​

 

After the Reserve Bank of Australia announced the decision not to raise interest rates, the AUD exchange rate also appeared an instant dive. And the Australian dollar fell sharply against the Chinese yuan from 4.6694 to its lowest point of 4.6526.

 

Source: Sina Finance

 

The Australian dollar also took an instant tumble against the US dollar, dropping from 0.6788 to the lowest point of 0.6757.

 

Source: Sina Finance

 

Looking back at the beginning of this year, experts predicted that the exchange rate of the AUD against the CNY would break through the 1: 5 mark this year. It's unknown how the future development of the exchange rate of the AUD against the CNY.

 

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