AUD/USD Analysis: Aussie pairs move lower following the RBA minutes

As is usually the case with central bank communications, investors can see or hear what they want. To my eyes, the threat of further hikes are apparent having read both of the RBA’s latest statement and minutes. Yet the fact that AUD pairs are lower and the ASX 200 trades higher suggest traders are jumping back on to the hopes that the RBA are at or near their terminal rate.

Markets really latched onto the fact that there was a debate between a pause and a hike, and that the decision to hike was ‘finely balanced’. And that has lessened fears that another hike is imminent.

But let’s not forget that the Fed have since hinted at another 50bp of hikes and Australia had another strong employment report. Q3 inflation is expected to be propped up by the latest annual wage review and, if this is to be coupled with another undesirably hot inflation report, we’re likely headed for another hike.

Ultimately, the RBA will continue to make their decision on a per-meeting basis and remain as data dependent as ever. And if data remains hot, any sell-off looks appealing to dip buyers, especially if China continue to add stimulus.

AUD/USD daily chart:

As AUD/USD posted strong gains from the May line in a relatively straight line, a pullback at the least seemed due. Barring a couple of upper daily wicks, its break above 0.6800 was quite direct and only increased I momentum thanks to another soft inflation report from the US. But it may have flown a bit too close to the sun, and now trades lower for a third day.

But it has now arrived at a crossroads around the 68c handle, which also marks the prior resistance area from the ‘RBA pause’ meeting in April. Given the significance of the level, a technically-driven bounce seems plausible at a minimum. Yet given the strength of the preceding move higher, perhaps we’re now in an ABC retracement, which could allow for another leg lower. In which case, we’d look for support above 0.6700 and seek bearish setups on lower timeframes.

AUD/USD 1-hour chart

A look at the 1-hour chart shows how AUD/USD is hesitant to break the 68c handle, but even if prices move lower bulls could look for support to build above 0.6780. The bias is simply for a technical bounce towards the cycle highs/lows ~0.6835, but whether this will then continue higher or print a swing high before breaking to new lows could be down to sentiment and incoming data.

Notes from the RBA’s June 2023 minutes:

• Growing evidence that household consumption growth had been subdued in the first half of 2023
• Significant financial pressure facing many households
• Unevenness in household spending (some drawn on savings, others face considerable budget constraints)
• Rising house prices could be less of a drag on consumption than originally envisaged
• Strong population growth had supported demand for housing
• The labour market remained very tight
• A range of measures suggested that wages growth had been in the 3½ to 4 per cent range
• Annual wage review was higher than expected, and will add to wage price index in September quarter
• Timely indicators pointed to a gradual easing in inflation in the June quarter
• Monthly CPI indicator of 6.8% was higher than expected, but partly due to changes of volatile items within the index
• Increases in the cash rate continued to be passed through to higher lending rates
• The value of non-performing housing loans had risen a little but from a very low level
• Measures of personal insolvencies also remained at low levels
• The decision to increase the cash rate in May had been unexpected by many market participants
• Around half of economists surveyed expected 50 basis points of tightening by August, which was broadly in line with the probability implied by market pricing
• Inflation had passed its peak but remained well above target and was forecast to return to the top of the target range only by mid-2025
• Members discussed two options: increasing the cash rate by 25 basis points; or holding the cash rate unchanged
• Whilst the arguments were finely balanced, the case for a hike was stronger
• Recent data suggested that inflation risks had shifted somewhat to the upside
• The latest increase would provide greater confidence that inflation would return to target over the period ahead

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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