Tue, Mar 21, 2023 @ 06:49 GMT
HomeContributorsFundamental AnalysisRBA Remains on Hold, But Tilts Somewhat Dovish

RBA Remains on Hold, But Tilts Somewhat Dovish

The Reserve Bank of Australia remained on hold today, as was widely anticipated. However, the statement had a somewhat dovish tone compared to the previous one, in our view. The Bank indicated that some labor market indicators have softened recently, while it noted that the recently announced supervisory measures with regards to lending could ease financial stability risks.

This suggests to us that once these measures take effect, the Bank would be more flexible to cut rates again if needed, without being concerned that its actions would amplify risks to the economy. Thus, although our base case scenario is still for the RBA to remain on hold in the foreseeable future, further weakness in economic indicators, could encourage officials to act without much hesitation. We believe that the picture will become much clearer on the 26th of April, when we get the nation’s CPI data for Q1.

AUD/USD tumbled following the release of the meeting statement, falling below the key support (now turned into resistance) obstacle of 0.7600 (R1). This move confirms a forthcoming lower low on the 4-hour chart and combined with the Bank’s dovish language, increases the likelihood for the pair to stay on the back foot for a while. The upcoming meeting between US President Trump and Chinese President Xi Jinping on Thursday could also prove negative for the currency. Any talks of increased protectionism in the global arena could weigh on the currencies of heavily trade-oriented nations, such as AUD and NZD. At the time of writing, the rate is testing the 0.7580 (S1) area, where a decisive dip is possible set the stage for our next support of 0.7550 (S2).

Today’s highlights:

During the European day, we get the UK construction PMI for March. The forecast is for the index to have declined, albeit marginally. Nonetheless, following the unexpected tumble in the manufacturing index for the month, we see the risks surrounding the construction forecast as skewed to the downside, perhaps for a greater than expected slide. In such a case, GBP could come under renewed selling pressure. We prefer to exploit further pound weakness against the yen, which continued to strengthen yesterday. GBP/JPY slid and is currently testing the 137.50 (S1) support zone. A disappointing construction PMI today could push the rate below that hurdle and pave the way for the key territory of 137.00 (S2). However, a clear close below that barrier is needed to turn the broader outlook negative as well.

From Eurozone, we get retail sales for February, while from the US, the trade balance and factory orders for the same month are coming out.

We have only one speaker on the schedule: ECB President Mario Draghi. Following the latest media reports that investors over-interpreted the ECB’s signals at the March policy meeting, and the subsequent slowdown in the bloc’s CPI prints for March, it would be interesting to hear what the ECB chief has to say.


Support: 0.7580 (S1), 0.7550 (S2), 0.7530 (S3)

Resistance: 0.7600 (R1), 0.7625 (R2), 0.7650 (R3)


Support: 137.50 (S1), 137.00 (S2), 136.50 (S3)

Resistance: 138.70 (R1), 139.10 (R2), 140.00 (R3)

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