RBA Raises Cash Rate to 3.85%, Aussie Jumps; Gold, Silver Recovers; Stock Markets Rising; Bitcoin Remains Weak Below $81k; Prediction Markets See No US Strike on Iran as Talks to Begin
Summary: The Reserve Bank of Australia made the first rate hike by any major central bank since the coronavirus pandemic began in 2020.
- A few hours ago, an unfamiliar event happened in the Forex market: a major central bank, in this case the RBA, raised its interest rate, something that has not been seen in over 6 years except at the Bank of Japan. Markets had priced-in a 73% chance that this 0.25% hike to 3.85% would happen today, and it came to be, by unanimous decision, due to the unexpected increase in Australian inflation seen a few days ago in CPI data. The unanimous decision caused a bit of a hawkish tilt, which helped send the Australian Dollar higher, with the AUD/USD currency pair trading well above the big round number at $0.7000. We may now see a further rise in the AUD, but it is unlikely to be dramatic.
- The market generally is now seeing a recovery in risk sentiment, boosted by perceived fading prospects of war between the USA and Iran. The sides have agreed to begin talks in Turkey on Friday, and the prediction side Polymarket's odds now see war as unlikely for the first time since this crisis began. In my opinion, the Iranians will try to offer enough that they can bluff their way through until the end of Trump's presidency without really giving anything up, but President Trump will probably not buy it, so war is likely to happen a few weeks from now. Trump's main problem is that he wants any war to be a quick win, and it is unclear that such a quick win is possible. In any case, the US military build up adjacent to Iran will continue.
- The recovery in risk sentiment is boosting stock markets and even the price of precious metals, notably Gold and Silver. The S&P 500 Index is trading off-hours above 7,000 and may make a fresh record high closing price today. In Asia, the Japanese Nikkei 225 Index is up by almost 4% to an all-time high price, and the Korean KOSPI Composite Index is almost at a fresh high. Gold is up by almost 5% today while Silver is almost 8% higher. However, I caution bulls, as I think precious metals will trade up and down with big swings, basically going sideways for at least the next few weeks.
- Bitcoin is trading a little higher after rebounding from its fresh 9-month low yesterday, but it remains below the former very pivotal support level near $81,000. It is possible we may be seeing the start of a completion of a bullish double bottom at the 1-year low touched yesterday. However, something is off with Bitcoin and the crypto sector. If I wanted to buy here, I would sit on the sidelines and keep watching and waiting for the time being.
- In the Forex market, since today's Tokyo open, the strongest major currency is the Australian Dollar, while the weakest is the Japanese Yen, putting the AUD/JPY currency cross in focus. This has historically tended not to trend reliably, but has been in a strong bullish trend for many months.
- Yesterday's release of US ISM Manufacturing data came in notably stronger than expected, suggesting resilience in the US economy, which slightly bolsters the case for a slower pace of rate cuts.
- There will be two high-impact data releases today:
- US JOLTS Job Openings
- New Zealand Unemployment Rate
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