RBA Minutes Likely To Bring Focus On Aussie Dollar

Earlier this month, on the RBA hiked rates to 7.0% by 25 bps on 04-Feb and issued a statement, which was moderately hawkish although it did not indicated the possible time line of its next policy action. It primarily said ....... "In future meetings, the Board will continue to evaluate whether the stance of policy will be sufficiently restrictive to return inflation to the 2-3 per cent target." This indicated that RBA could be more or less data-dependent going into March-08 meeting.

However subsequently, last week the RBA issued a Statement on Monetary Policy which was much much more clear and Hawkish, as to the next interest rate hike could come as soon as 05-March-08, next RBA meeting. Infact it was as hawkish as it could have been without accompanying an interest rate hike! In the Monetary Policy Statement, RBA said ........ "On the current outlook, then, and allowing for the inevitable uncertainties in forecasting, the risk of inflation remaining uncomfortably high for some time is considerable. Absent a further shift in economic risks to the downside, therefore, monetary policy is likely to need to be tighter in the period ahead." Apart from the rate indication, RBA also upped its CPI forecast for a period up to 2010 and indicated that CPI would be running above the upper end of RBA "Comfort Zone" of 3.0% till 2010.

In light of this, the Minutes of RBA 04-Feb-08 meeting would be important, as it would show the intent of RBA on cash rate (currently 7.0%) for forthcoming meetings, including the 05-March-08 meeting. A hawkish set of minutes (possibly there was a talk within RBA of a 50bps hike in Feb-08 itself?) would help judging the probability of a March-08 hike. Such an outcome would continue Supporting the Aussie Dollar, which is likely to gain the most against fellow commodity currency, CAD where interest rates are very likely to be cut again also on 04-March. On the other hand, a dovish set of minutes is a very very low probability.

Historically, the last time RBA hiked in successive meetings was back in Nov-2003 and Dec-2003, when it hiked by 25bps each. Before that successive interest rate hikes came in May-02 and June-02. The last change in interest rate to the extent of 50bps had come in Apr-01 when the inertest rate was cut by that magnitude.

Technically, AUD-USD had a nice rally last week and it has been firm this week again, so far. The important Resistance is at 0.9140, on the trendline on the Daily Candles joining the highs of 0.8908 (12-Dec) and 0.9103 (04-Feb). A move above 0.9160 on a sustained basis could result in a rally towards 0.9250 or even 0.9408 and 0.9500 looking further out. On the downside the Support is at 0.9050, on the broken trendline on the Daily Candles joining the highs of 0.9403 (07-Nov) and 0.9089 (12-Feb). A dip towards the latter during the week should be used to buy.

Kshitij Consultancy Service
http://www.fxthoughts.com

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