Tomorrow (12:30 GMT), markets will focus on the release of the minutes from the Reserve Bank of Australia‘s (RBA) November 7th interest rate decision. However, just before the minutes, speeches by RBA Governor Michelle Bullock (at the ASIC Annual Forum in Melbourne) and Carl Schwartz (at the Australian Securitization Forum’s conference in Sydney), Acting Head of Domestic Markets, will be closely watched. Also of note is another speech by the RBA Governor on Wednesday evening (Aus time) at the ABE Annual Dinner in Sydney.
Dovish hike?
Unless you have been hiding under a rock, you will recall that the RBA recently shifted gears and raised the Official Cash Rate (OCR) by 25 basis points to 4.35%, a 12-year high. The move was expected by markets and economists, and broke a four-meeting drought: most economists polled by Reuters predicted the hike, largely on the back of elevated inflationary pressures.
Accompanying the rate hike was the RBA Governor’s statement, with most focusing on the change in language, replacing the phrase “some further tightening of monetary policy may be required” from the October statement with “whether further tightening of monetary policy is required”. As a result, the latest policy decision was labeled a ‘dovish hike’, hence the AUD‘s bearish bias shortly thereafter. It is also worth noting that the post-meeting statement noted that inflation is expected to be around 3.5% by the end of next year and at the upper end of the target range (2-3%) by the end of 2025.
The RBA’s next interest rate decision is scheduled for December 5; according to the ASX 30-day interbank cash rate futures, markets are fully pricing in the central bank to keep the OCR at 4.35%. The minutes are likely to provide more clarity on the latest rate decision and a better outlook on the future direction of interest rates. As a result, we can expect increased volatility in the Aussie currency pairs following the release of the minutes, as well as in the domestic equity and bond markets.
AUD/USD Technical Analysis
Following today’s action, which saw the pair break through resistance at $0.6502 on the daily chart, the AUD/USD is now approaching the underside of its 200-day simple moving average (SMA) at $0.6591, which, as you can see, has been pointing south since mid-August. Should the pair engulf this dynamic value (moving averages can (and often do) provide support and resistance), this will likely be recognized as a bullish cue to target daily resistance at $0.6659.
Meanwhile, on the monthly chart, chart studies show that the pair is bouncing off the lower boundary of a potential bearish pennant formation drawn between $0.6170 and $0.7158. It is interesting to note that the upper boundary of the said pennant converges closely with the above-mentioned resistance level on the daily timeframe at $0.6659 and the neighboring 200-day SMA.
With that in mind, the bulls are in the driver’s seat for the time being, at least until they shake hands with the 200-day SMA/daily resistance.
