Reserve Bank of Australia Preview: More dovishness in the docket

The Reserve Bank of Australia will unveil its latest decision on monetary policy on Tuesday, July 6, followed by a press conference from Governor Philip Lowe. This is quite an unusual event that anticipates an unexpected announcement.

The RBA has left its cash rate at 0.1%, and its assets purchase scheme unchanged last month, keeping the three-year bond yield target of 0.1%. However,  policymakers have anticipated they would review its monetary policy in July, and investors were anticipating some announcement related to tapering.

A turn to the worse

Australian policymakers have been confident about the economic performance, yet at the same time, maintained a dovish stance. Given subdued employment and inflation, they have long stated that rates will remain at current lows at least until 2024.

Between the June meeting and the current one, things have changed to the worst in Australia. The spread of the Delta covid variant in the country has resulted in fresh lockdowns, which further slow the economic comeback.

Market players were expecting that the bank would announce some form of tapering in this July meeting, probably related to the rate of bond purchases, either by scaling back the number of purchases or spreading them over a longer period of time. This is now in doubt. Also, the market is expecting rates to remain unchanged at record lows. On the three-year bond, expectations are that the RBA will be limiting the yield target of 0.1% to April 2024.

There’s a general sense that the central bank will be dovish, although there’s no clear indication on how conservative Australian policymakers will be. Overall, it is expected to be an AUD bearish trigger.

AUD/USD possible scenarios

The AUD/USD is technically bearish, according to the daily chart. That means that a hawkish surprise will likely have a lesser impact on the pair than a dovish outcome from the RBA decision. In the mentioned time frame, the 200 SMA provides dynamic resistance at 0.7565, a probable bullish target in the case the aussie appreciates with the announcement. On the downside, the level to watch is 0.7480, as a steeper decline could be expected on a break below it.