RBA minutes eyed; AUD/USD echoes bullish vibe

Markets are poised for tomorrow’s release of the minutes (12:30 am GMT) from the Reserve Bank of Australia’s (RBA) rate decision on 7 November. Just ahead of the minutes, however, speeches from the RBA Governor Michelle Bullock (at the ASIC Annual Forum, Melbourne) and Carl Schwartz (at the Australian Securitisation Forum´s Conference, Sydney), Acting Head of Domestic Markets, will be watched closely. Also of relevance is another speech by the RBA Governor on Wednesday evening (Aus time) at the ABE Annual Dinner in Sydney.

Dovish hike?

Unless you were hiding under a rock, you would recall the RBA recently shifted gears and lifted the Official Cash Rate (OCR) by 25bps to 4.35%, a 12-year high. The move was expected by markets and economists and snapped a four-meeting pause: most economists polled by Reuters forecasted the rate hike, based mainly on elevated inflationary pressures.

Accompanying the rate increase was the statement from the RBA Governor, with most focussing on the language change, exchanging the following sentence from the October statement: ‘Some further tightening of monetary policy may be required’ to ‘Whether further tightening of monetary policy is required’. On the back of this, the latest policy decision was labelled a ‘dovish hike’, hence the downside bias in the AUD shortly thereafter. It is also worth highlighting that In her post-meeting statement, it was noted that inflation is expected to be around 3.5% by the end of next year and at the upper boundary of the target range (2-3%) by the end of 2025.

The next RBA rate decision is set for 5 December; according to the ASX 30-Day Interbank Cash Rate Futures, markets are fully pricing in that the central bank will hold the OCR at 4.35%. The minutes should offer more clarity on the latest rate decision and present more of an outlook on the future direction for rates. Consequently, we can expect elevated volatility in Aussie currency pairs following the release of the minutes, as well as domestic equity markets and bonds.

AUD/USD technicals

Following today’s action rupturing resistance at $0.6502 on the daily scale, the AUD/USD currency pair is fast approaching the underside of its 200-day simple moving average (SMA) at $0.6591, which, as you can see, has pointed in a southerly direction since mid-August. Should the pair engulf this dynamic value (moving averages can [and often do] offer support and resistance), this will likely be recognised as a bullish cue to aim for daily resistance from $0.6659.

Meanwhile, out of the monthly chart, chart studies reveal that the unit is rebounding from the lower boundary of a potential bearish pennant formation, drawn between $0.6170 and $0.7158. The interesting observation is that the upper boundary of the said pennant converges closely with the resistance level highlighted above on the daily timeframe at $0.6659 and the neighbouring 200-day SMA.

On the back of this, bulls are at the wheel for the time being, at least until shaking hands with the 200-day SMA/daily resistance.

Monthly chart

Daily chart