Australian Dollar Analysis and Talking Points
AUSTRALIAN DOLLAR SOARS AS RBA LOSES PATIENCE
The Australian Dollar is the notable outperformer as the RBA prepares market participants for higher interest rates. While monetary policy was left unchanged with the cash rate target at 0.1%, as expected. The key shift stemmed from the change in forward guidance in which the RBA dropped the statement that they will remain “patient”. In turn, the Aussie rates market has repriced higher and by extension AUD has vaulted through key resistance at 0.7550 to break above 0.7600. A retest and hold above prior resistance, now support at 0.7550 will be an encouraging sign for AUD bulls and keep the currency on track to test 0.7750-0.7800.
That said, with the RBA stating that they will assess incoming data “over coming months”, this suggests that June is a live meeting as opposed to May. Additionally, with the RBA also awaiting to see a pick up in wage growth in order to see evidence that inflation is sustainably within its target range, this further endorses the view that May is too soon for the RBA to act. Of note, the Australian wage price index for Q1 will not be released until two weeks after the May policy decision. Not to mention that there will also be an election campaign during May, which further reduces the likelihood that rate liftoff will take place next month. While many point out that much like other central banks, the RBA is independent, it is worth noting that in its 62 year history of indendence, the RBA has only altered policy twice during an election campaign. As it stands, money markets are 58% priced in for a hike next month.
RBA RATE EXPECTATIONS
Source: RBA
NOTABLE COMMENTS
Wages growth has picked up, BUT, at the aggregate level, is only around the relatively low rates prevailing before the pandemic
Inflation has increased in Australia, BUT it remains lower than in many other countries
Inflation has picked up and a further increase is expected, BUT growth in labour costs has been below rates that are likely to be consistent with inflation being sustainably at target
ECONOMIC DATA
Apr 14th: Mar Jobs report
Apr 27th: Q1 CPI
May 5th: RBA May Meeting
May 18th: Wage Price Index
AUD/USD Chart: Daily Time Frame
Source: Refinitiv
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