AUD/USD weekly outlook: Powell, RBA rate decision in focus

Key points:

• Monday could be off to a volatile start if Jerome Powell’s 60-minutes interview causes a stir for global markets
• The RBA meeting, press conference and updated forecasts should drive sentiment for AUD and the ASX next week
• The RBA are expected to hold rates steady, but markets have nearly fully priced a cut to arrive by July
• The RBA will release their quarterly economic outlook with their rate decision and a press conference 1 hour later.
• AUD/USD is showing signs of stability above 65c following its 4-week bearish streak

Potential market drivers for AUD/USD, AUD/JPY, ASX 200

Jerome Powell interview on 60-minutes (11:00 AEDT, 00:00 GMT, 17:00 EST Sunday)

Monday’s trade could start with a bang if Jerome Powell’s pre-recorded interview is a ‘something’ burger. With markets priced for multiple cuts, Powell could either concede with dovish pricing to send the US dollar lower and risk higher. And that could propel AUD/USD higher along with indices in the APAC session and US futures. Of course, this could benefit the ASX 200 as well, which has just reached a fresh record high at the time of writing. Yet if Powell sticks to the script and pushes back against a May cut, sentiment could sour and weigh on AUD/USD and the ASX 200.

RBA meeting, quarterly forecasts (14:30 AEDT, 02:30 GMT, 19:30 EST)

Will the RBA drop the minor threat of further tightening from their statement?

The final paragraph in December said “whether further tightening is required… will depend upon the data and the evolving assessment of risks”. A subtle change of this sentence could indicate that there’ll be no immediate discussion over hikes, even though markets haven’t priced them in for a few months now. But it would still be significant step closer towards the dovish pivot markets want to hear, and could weigh on AUD/USD.

Revisions to the RBA’s quarterly economic forecasts

The RBA will release their Quarterly SOMP (Statement on Monetary Policy) on Tuesday along with updated economic forecasts. Given their CPI and trimmed mean inflation outlook were upgraded in 2024 and 2025, I’ll be looking to see whether these get revised lower again, following the softer Q4 CPI figures released this week. And that could potentially bring forward bets of the RBA’s first cut if they do.

The RBA’s press conference (15:30 AEDT, 04:30 GMT, 23:30 EST)

This will be the RBA’s first post-meeting press conference following the RBA review last year. I presume it will be headed by RBA Governor Bullock, who had a bit of a rocky start with her public comments last year. To be fair, this is usual when central bank governors take the helm and they learn the do’s and don’t of policy communication.

Ultimately, the press conference is an opportunity for the RBA to fine tune their message after their announcement, with the added benefit of seeing how markets responded. As an example. It was not uncommon to see Jerome Powell shift markets in the opposite direction after the Fed meeting, as markets presumably misinterpreted the Fed’s intended message.

It is also an opportunity for journalists to ask the Governor questions, and that can spark the more volatile reactions if the governor is caught off guard or lets something slip – intentionally or not.

Additional data points for AUD/USD traders to keep in mind

• US services ISM report: It really depends on the potency of Powell’s interview as to how relevant ISM services could be for Fed rate expectations. But if it drives the US dollar, it will impact AUD/USD
• China data (PMI, CPI, new loans): AUD/USD hasn’t responded as well to China’s data as well as it used to. But if we are to find it all improving in tandem, it could support sentiment across APAC to drive the Hang Seng, China A50 or even AUD pairs higher.

AUD/USD technical analysis:

AUD/USD fell for four consecutive weeks by Jan 26 close. At the time of writing, it is trying to break the bearish sequence and shows the potential for a spinning top doji above 75c. Given RSI (2) was also oversold last week, a case could be building for a bounce higher. With 75c seemingly wanting to hold for now, perhaps a move towards 0.6650 could be on the cards, near the upper 1-week implied volatility band. A dovish Powell and less-dovish-than-hoped RBA meeting could certainly help with such as scenario.

AUD/JPY technical analysis (daily chart):

The daily chart for AUD/JPY shows an interesting pattern; spike lows which are also higher lows have appeared between 40 and 47-day apart. If this pattern holds true, it suggests prices will once again try yet fail to break above the 2022 high over the next few weeks before selling off aggressively around the end of March or beginning of April.

With AUD/JPY being heavily intertwined with appetite for risk and therefore global equity sentiment, it requires Wall Street to continue to new record highs for the pattern to stand any chance of repeating.

Prices are retracing higher ahead of Friday’s nonfarm payroll report. A break beneath 95.50 would quickly invalidate the pattern, until which the 97 and 98 handles are in focus for bulls.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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