Aussie shrugs off RBA minutes, weak consumer confidence

• RBA minutes state further rate hikes possible.

• Australian consumer confidence sinks.

• Australian wage growth to be released on Wednesday.

The Australian dollar has taken investors on a wild ride over the past few days but has settled down on Tuesday. AUD/USD is trading at 0.6687 in Europe, down 0.13% on the day.

RBA minutes indicate more rate hikes possible

The RBA released the minutes of its meeting earlier this month. That meeting was a barn-burner, with the RBA stunning the markets with a 25 basis-point hike. The central bank had finally taken a pause in its rate-tightening cycle in April and given the lukewarm economy, a second-straight pause seemed a safe bet, but in the end, the RBA opted for a rate increase.

The minutes noted that the decision to pause or hike was “finally balanced”, with strong arguments for both. In the end, policy makers opted to lift rates in order to lower the risks of inflation becoming entrenched in the economy. Strong population growth, low rental vacancy rates and a tight labour market supported a rate hike.

What can we expect next from the RBA? The minutes didn’t provide any insights, stating that more rate hikes “may be required” to drive down inflation, but that would “depend on how the economy and inflation evolve”. In other words, don’t look to the RBA for guidance, as rate policy will depend on economic data, particularly inflation.

Australian consumer confidence fell sharply, but the Australian dollar didn’t react. Westpac Consumer Confidence plunged 7.9% in May, a sharp reversal from the 9.4% gain in April and much worse than the estimate of -1.7%. The Westpac survey found that consumers were very pessimistic about the surprise rate hike and expect mortgage rates and house prices to move upwards.

We’ll get a look at wage growth on Wednesday, which is expected to rise in the first quarter. The RBA will be watching carefully and an unexpected reading could see the Aussie show some volatility.

AUD/USD technical

• AUD/USD is putting pressure on resistance at 0.6699.  This is followed by 0.6761.

• 0.6579 and 0.6517 are providing support.