The Australian dollar is in negative territory today. AUD/USD is trading at 0.6706, down 0.30% on the day.
RBA says rates to increase
The RBA minutes of the September 6th meeting didn’t shed any new light on the central bank’s rate policy, and the Australian dollar’s response has been muted. The minutes reiterated the message that the markets have already heard from Governor Lowe – additional rate hikes are coming, but the size of the hikes will depend on inflation and growth.
The minutes noted that rates are approaching “normal settings”. At the meeting, members argued over whether to raise rates by 25bp or 50bp – in the end, the Bank went for the latter option, bringing the cash rate to 2.35%. With no inflation or employment data prior to the October meeting, the RBA may still be up in the air with regard to the size of the rate hike right up to decision time. This will make for an interesting meeting which could trigger volatility from the Australian dollar.
There are arguments to be made on both sides. Inflation rose to 6.1% in the second quarter, and as the RBA’s number one priority, Lowe may want to keep the pedal on the floor until there are clear signs that inflation is moving lower. On the other hand, inflation expectations have slowed over three straight months, a possible indication that inflation may have peaked or will do so shortly. Lowe would very much like to guide the economy to a soft landing, which would be facilitated by a modest 0.25% hike.
The Federal Reserve meets on Wednesday, with the markets expecting a 0.75% hike. There is about a 20% chance of a massive full-point hike. The markets will be listening carefully to the Fed’s guidance – if it is hawkish, the US dollar should respond with broad gains.
- AUD/USD has support at 0.6623 and 0.6523
- There is resistance at 0.6769 and 0.6869