Alike every first Tuesday of the month, the Reserve Bank of Australia (RBA) is up for conveying the latest monetary policy meeting and Interest Rate Decision around 03:30 AM GMT.
The RBA is expected to keep the benchmark interest rate unchanged around 0.10%. However, the latest jump in the Aussie inflation pushes market players to hope for the policymakers’ hawkish comments, as well as dropping the Yield Curve Control (YCC) measures, which in turn highlights today’s monetary policy meeting for the AUD/USD traders.
Following the RBA decision, Deputy Governor Guy Debelle is also up for speaking at a virtual panel discussion and will be watched for details of the policy moves, if any.
Ahead of the event TD Securities said,
We expect the RBA to announce an end to its Yield Target Framework tonight. This follows the RBA's decision to not defend the yield on the Apr'24s even after trading significantly above the 10bp target. As for QE we expect the Bank to announce QE to end in Feb'22.
On the other hand, Westpac said,
The Aussie absorbed a lot of pressure in September, as it slipped from well above 0.7400 to under 0.7200. China’s property sector was in particular focus and the US dollar was supported by an upbeat Fed and safe-haven demand. But the Aussie has rallied strongly so far in October, backed by the price squeeze on key commodity exports such as coal, metals and LNG. It is not clear how much more support A$ will garner from this source, as China's steel output finally retreats. Domestically, NSW’s Covid situation has improved dramatically in recent weeks and Australia’s unemployment rate may remain under 5.0%. But the RBA continues to insist that wages growth and inflation will remain muted, keeping the cash rate at a globally unattractive 0.1% into 2024. Near-term AUD/USD could spend some time in the 0.75-0.76 area but price action should become more two-way over Q4 and our year-end target remains 0.75. (20 October).
How could the RBA decision affect AUD/USD?
AUD/USD pokes intraday high around 0.7530 ahead of the key RBA decision during early Tuesday. The Aussie pair seems to prepare to the disappointment as firmer US Dollar Index (DXY) and mildly offered stock futures have been rejected to print the latest gains.
Although the firmer inflation and the RBA’s inaction back hawkish expectations of a YCC move, any disappointment shouldn’t be taken lightly amid a risk-off mood. However, the underlying price pressure and the recent improvement in Australia’s covid conditions, coupled with the market’s cautious mood ahead of Wednesday’s Fed verdict, can keep the AUD/USD bears challenged.
Technically, AUD/USD portrays a rising wedge bearish chart pattern near the highest levels in four months, suggesting a stronger bearish reaction should the RBA disappoints.
Key quotes
AUD/USD retreats towards 0.7500 ahead of RBA
AUD/USD Price Analysis: Rising wedge around four-month top probes bulls below 0.7550
Reserve Bank of Australia Preview: Reality check for Australian policymakers
About the RBA interest rate decision
RBA Interest Rate Decision is announced by the Reserve Bank of Australia. If the RBA is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the AUD. Likewise, if the RBA has a dovish view on the Australian economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.
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