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June RBA Meeting minutes hint to a period of wait and watch

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The RBA released its meeting minutes for the monetary policy review conducted on June 2nd this month. The meeting minutes did not steer too much from the usual narrative of talking about the housing markets and the real estate bubble, employment/labour markets and the Aussie’s exchange rate.

Depending on how one understands the meeting minutes, the RBA hinted to a period of wait-and-watch before deciding on the possibility of any further rate cuts. The biggest concern for the RBA continues to be the rise of capital inflows to the real estate sector which could risk causing a bubble, while also concerned about the weakening investment in the business sector.

In terms of forward guidance, the minutes did not offer any specific hints to future course of action, in what is being translated to as no further rate cuts from the RBA in the near future.

The Central bank’s minutes also continued to stress on the value of the Australian Dollar’s exchange rate against a ‘basket’ of currencies; a shift, which was earlier dedicated to the exchange rate against the Greenback alone.

Since the RBA’s rate cut, the Euro has also managed to rally against the Aussie dollar, in effect playing to the tunes of the Central Bank.

Economic data, post the RBA’s monetary policy review earlier this month saw the release of the quarterly GDP which managed to beat estimates, rising 0.9% for the quarter, up from 0.5% previously. The unemployment rate also ticked lower from 6.1% to 6%. The better than expected prints in both the GDP and the unemployment rate is likely to further weaken the prospects of any rate hikes for at least the next month. Besides the point that business confidence in Australia managed to rise to a 9 month high in May.

Today’s meeting minutes clearly lacked any major decisions and the Aussie staged a minor rally, albeit remaining sideways on the longer time frame. The AUDUSD was seen trading at 0.7758, post the meeting minutes release. Based on the fact that economic conditions in Australia managed to post encouraging numbers for the month of May, it was understandable that today’s meeting minutes failed to attract any significant market reaction.

Looking forward, the Aussie is likely to move sideways in the run up to tomorrow’s FOMC meeting, which includes the dot plot economic projections and press conference. Markets had earlier indicated an interest rate hike in June which quickly faded as the US economy contracted in the first quarter of the year. Tomorrow’s FOMC meeting is likely to provide more clues into the rate hike as the markets are currently pricing in a September/October rate hike.

AUDUSD – Technical Analysis

From the daily charts, the Aussie has formed a basing pattern near the lows of 0.7595 region, in what looks like a probable triple bottom. With the RSI turning higher on each of the bounces near the lows of 0.7595, it is likely that we could expect a short term rally in the AUDUSD above 0.786, which will see the currency test previous highs near 0.81. Alternatively, failure to rise above 0.786 level of support/resistance could see a fresh selling pressure push the prices lower, beyond the recent lows near 0.7595.

AUDUSD – Daily Chart. RSI – Price Divergence
AUDUSD – Daily Chart. RSI – Price Divergence
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