The Australian Dollar heads into a week of crucial data that could possibly shed light into the May’s RBA policy meeting.
Due this week is the RBA meeting minutes, that will reveal the inside discussions into the decision behind the RBA opting to stand pat on interest rates.
A quick recap from the previous RBA minutes will help to build context on the upcoming release.
- The Central bank noted that another rate cut would be appropriate but that it would rather wait to see if the economy remains on path to the RBA’s forecasts.
- The Central bank was aware of the risks of further rate cuts which would fuel investor activity into the already heated housing and mortgage markets, especially in regions such as Sydney where housing prices have seemed to have soared.
In its recent monetary policy statement, the RBA stuck to its narrative. The highlights were:
- Growth continues at a below trend place with the decline in energy prices putting downward pressure on the trade numbers
- Lending to businesses continue to improve
- Jobs data continues to improve at a steady pace
March Jobs Data
The unemployment numbers for March posted another robust month and so far, in the first quarter, unemployment rate has managed to tick down from 6.4% in January to 6.1% in March.
Australia Unemployment Rate ytd
RBA’s Forecasts on Inflation
The Reserve Bank of Australia’s mandate is to maintain inflation rate between 2% and 3% on average. The ytd inflation rate for Australia has been hovering near 1.7% on the headline and 2.1% on the core, as of the recent quarter. If oil prices have to be considered, then the rate of decline in WTI Crude oil in the recent quarter has been more subdued as consumer prices seem to have quickly adjusted to these changes. And this is evident from CPI data from other regions such as Canada, US and Europe where inflation numbers in recent times have managed to stabilize.
Heading into this week, the inflation data, due on April 22nd could provide the final clue as to whether the RBA will cut rates this quarter or not. It must be noted that the RBA’s previous rate cut was in February and as per the minutes back then, the RBA noted that it cut rates so as to offer a more clear communication during its FSR review few days later.
Back then, inflation during Q4, 2014 dropped to 1.7%, from the previous quarter’s 2.3% and from a peak of 3% in Q2 of 2014.
Australia, Quarterly CPI
The rate cuts in February therefore seem to be well justified. So, this week the inflation data is most likely to offer clues as to what the next policy decision may be for the RBA. If inflation remains stable at 1.7%, or deviates by +/- 1bps, it would make the next RBA meeting in May a very close call.
AUDUSD – Technical Levels
After price formed a triple bottom near the support level of 0.759 through 0.7558, AUDUSD has managed to bounce off, only to see the rally capped near 0.781. A corrective decline to seek support near 0.7719 could see some bounce before the eventual support down to 0.767 through 0.765 is established to keep the uptrend intact and these are the most likely technical levels to watch in AUDUSD for the week ahead.
AUDUSD – Technical levels
