AUD/USD. The Australian dollar awaiting RBA minutes and Powell’s speech
June 19, 2023 1:24 pm
The Australian dollar against the US currency tested the 0.69 level last week, thus reaching a four-month price high. The Australian dollar took advantage of the greenback’s weakness, which reacted negatively to the outcome of the June FOMC meeting. Additionally, the Australian dollar continues to benefit from the support of the Reserve Bank of Australia (RBA), which unexpectedly raised interest rates in June and announced further steps. The established fundamental background allowed AUD/USD buyers to make a northern leap and test the boundaries of the 0.69 level. However, the first attempt did not bring the desired result. For the upward trend to continue, an additional informational catalyst is necessary. In this context, special attention should be paid to the minutes of the RBA’s June meeting (expected to be released on Tuesday) and the speech by the head of the Federal Reserve (Fed) in Congress (Wednesday + Thursday). These events can either strengthen the bullish trend or trigger a southern correction.
Awaiting RBA minutes
To recall, following the last meeting, the Australian regulator increased the interest rate by 25 basis points, contrary to the expectations of most experts who anticipated a status quo. Commenting on the decision, the central bank stated that upward risks to the inflation forecast had increased, and therefore, the regulator had to respond to this fact. Furthermore, in the accompanying statement, the central bank explicitly mentioned that additional “modest tightening” of monetary policy might be required in the future, as the rate hike should ensure “greater confidence that inflation will return to the target level in a reasonable period.”
Such rhetoric suggests that if upcoming inflation reports in Australia show results in the “green zone,” the Reserve Bank will again raise the interest rate to 4.35%.
Considering the formal outcomes of the June meeting and the tone of the accompanying statement, it can be assumed that the minutes of the meeting will also maintain a hawkish tone. The main argument in favor of this version is the rise in inflation. To recall, data on the growth of the Consumer Price Index (CPI) for April was published at the end of May. The report was in the “green zone,” contrary to the expectations of most experts predicting a decrease in inflation. The CPI rose significantly. Despite the forecast of a decline to 6.2%, the index increased to 6.8% monthly. The indicator turned north again after three consecutive months of decline.
However, even if the RBA minutes provide support to the Australian dollar, this support will be temporary, as the hawkish stance of the Australian regulator has already been partially priced in by AUD/USD traders (a more significant effect would come from a “dovish” tone in the document, but this scenario is highly unlikely). To resume the bullish trend, another important piece of the puzzle is needed in the form of Jerome Powell’s soft comments.
Powell speaks
This week, the head of the Federal Reserve (Fed) will speak twice in the US Congress: first in the House of Representatives (on Wednesday) and then in the Senate (on Thursday). Although Powell spoke with journalists just last Wednesday, his testimony before Congress will undoubtedly provoke strong volatility among dollar pairs, including AUD/USD.
It is worth noting that despite the hawkish tone of the Fed’s accompanying statement, Jerome Powell’s comments at the final press conference were cautious enough. For example, he stated that the risks of being overly aggressive in raising rates and being too cautious were becoming more balanced and that the Fed’s forecasts (dot plot) are not a set plan or pre-determined decision. Overall, the Fed Chair hinted that the further prospects of tightening monetary policy would depend largely on inflation dynamics and the labor market situation.
It is likely that the Fed Chair will reiterate the main theses voiced at the press conference during his congressional testimony. However, he will likely touch upon the banking crisis in the United States, the peak of which occurred in the spring. It can be assumed that Powell’s cautious statements will exert additional pressure on the US currency, considering that the probability of a rate hike at the July meeting is currently estimated at 74% (according to the CME FedWatch Tool). Any doubts about the implementation of this scenario will be reflected in the positions of the greenback.
From a technical perspective, the AUD/USD pair on the daily chart is positioned between the middle and upper lines of the Bollinger Bands indicator, and it is also above all the lines of the Ichimoku indicator, which has formed a bullish “Parade of Lines” signal on the daily timeframe. This indicates a preference for long positions. The immediate target for the upward movement is the 0.6920 level, which represents the upper Bollinger Bands line in this timeframe.
The material has been provided by InstaForex Company – www.instaforex.com
The Australian dollar against the US currency tested the 0.69 level last week, thus reaching a four-month price high. The Australian dollar took advantage of the greenback’s weakness, which reacted negatively to the outcome of the June FOMC meeting. Additionally, the Australian dollar continues to benefit from the support of the Reserve Bank of Australia (RBA), which unexpectedly raised interest rates in June and announced further steps. The established fundamental background allowed AUD/USD buyers to make a northern leap and test the boundaries of the 0.69 level. However, the first attempt did not bring the desired result. For the upward trend to continue, an additional informational catalyst is necessary. In this context, special attention should be paid to the minutes of the RBA’s June meeting (expected to be released on Tuesday) and the speech by the head of the Federal Reserve (Fed) in Congress (Wednesday + Thursday). These events can either strengthen the bullish trend or trigger a southern correction.
Awaiting RBA minutes
To recall, following the last meeting, the Australian regulator increased the interest rate by 25 basis points, contrary to the expectations of most experts who anticipated a status quo. Commenting on the decision, the central bank stated that upward risks to the inflation forecast had increased, and therefore, the regulator had to respond to this fact. Furthermore, in the accompanying statement, the central bank explicitly mentioned that additional “modest tightening” of monetary policy might be required in the future, as the rate hike should ensure “greater confidence that inflation will return to the target level in a reasonable period.”
Such rhetoric suggests that if upcoming inflation reports in Australia show results in the “green zone,” the Reserve Bank will again raise the interest rate to 4.35%.
Considering the formal outcomes of the June meeting and the tone of the accompanying statement, it can be assumed that the minutes of the meeting will also maintain a hawkish tone. The main argument in favor of this version is the rise in inflation. To recall, data on the growth of the Consumer Price Index (CPI) for April was published at the end of May. The report was in the “green zone,” contrary to the expectations of most experts predicting a decrease in inflation. The CPI rose significantly. Despite the forecast of a decline to 6.2%, the index increased to 6.8% monthly. The indicator turned north again after three consecutive months of decline.
However, even if the RBA minutes provide support to the Australian dollar, this support will be temporary, as the hawkish stance of the Australian regulator has already been partially priced in by AUD/USD traders (a more significant effect would come from a “dovish” tone in the document, but this scenario is highly unlikely). To resume the bullish trend, another important piece of the puzzle is needed in the form of Jerome Powell’s soft comments.
Powell speaks
This week, the head of the Federal Reserve (Fed) will speak twice in the US Congress: first in the House of Representatives (on Wednesday) and then in the Senate (on Thursday). Although Powell spoke with journalists just last Wednesday, his testimony before Congress will undoubtedly provoke strong volatility among dollar pairs, including AUD/USD.
It is worth noting that despite the hawkish tone of the Fed’s accompanying statement, Jerome Powell’s comments at the final press conference were cautious enough. For example, he stated that the risks of being overly aggressive in raising rates and being too cautious were becoming more balanced and that the Fed’s forecasts (dot plot) are not a set plan or pre-determined decision. Overall, the Fed Chair hinted that the further prospects of tightening monetary policy would depend largely on inflation dynamics and the labor market situation.
It is likely that the Fed Chair will reiterate the main theses voiced at the press conference during his congressional testimony. However, he will likely touch upon the banking crisis in the United States, the peak of which occurred in the spring. It can be assumed that Powell’s cautious statements will exert additional pressure on the US currency, considering that the probability of a rate hike at the July meeting is currently estimated at 74% (according to the CME FedWatch Tool). Any doubts about the implementation of this scenario will be reflected in the positions of the greenback.
From a technical perspective, the AUD/USD pair on the daily chart is positioned between the middle and upper lines of the Bollinger Bands indicator, and it is also above all the lines of the Ichimoku indicator, which has formed a bullish “Parade of Lines” signal on the daily timeframe. This indicates a preference for long positions. The immediate target for the upward movement is the 0.6920 level, which represents the upper Bollinger Bands line in this timeframe.
The material has been provided by InstaForex Company – www.instaforex.com
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