Reserve Bank of Australia Governor Michele Bullock speech could provide insight into the Board’s decision-making process.
Australian Dollar faces pressure as market awaits the verdict.
The Reserve Bank of Australia (RBA) is set to announce its monetary policy decision on Tuesday, August 6, with expectations of maintaining the Official Cash Rate (OCR) at 4.35% due to persistent inflation concerns. Governor Michele Bullock’s press conference following the announcement will likely offer further clarity on the decision and potential future actions.
Leading up to the announcement, the Australian Dollar (AUD) is experiencing selling pressure amidst global uncertainty and focus on central bank policies. Speculation is rife about the US Federal Reserve (Fed) potentially lowering interest rates in September, with market participants pricing in a 50 basis points (bps) cut to kickstart a new cycle.
RBA to Likely Extend Pause – What Comes Next?
While the Fed’s actions are significant, attention is also on the Bank of Japan (BoJ) following recent tightening measures. The BoJ’s decision to raise the near-term rate target by 15 bps and reduce bond buying signals a shift in policy focus, aiming to support the Japanese Yen (JPY) amidst currency devaluation concerns.
As RBA policymakers convene, the discussions may lean towards maintaining or potentially hiking rates, ruling out a cut for now. Recent inflation data in Australia paints a mixed picture, with Consumer Price Index (CPI) rising but falling slightly below expectations. The Trimmed Mean CPI, a key inflation indicator for the RBA, also showed modest growth, indicating a cautious approach to rate adjustments.
While Australian inflation levels do not warrant a rate hike, the likelihood of a cut remains low given the current economic data.
Impact of RBA Decision on AUD/USD
Market sentiment anticipates a “hawkish hold” from the RBA, with a focus on inflationary pressures and potential future hikes. If the RBA maintains the OCR at 4.35% without hinting at cuts, the AUD could see a temporary boost. However, a dovish stance could trigger a sharp decline in the currency.
The AUD/USD pair is currently trading around 0.6450, with potential for a correction towards 0.6500 – 0.6520 if the RBA’s decision aligns with expectations. A break below 0.6400 could signal further downside towards 0.6347 amid prevailing risk aversion.
Analyst Valeria Bednarik highlights the oversold nature of the AUD/USD pair, suggesting a potential rebound post-RBA decision. Resistance levels at 0.6500 – 0.6520 could limit gains unless a hawkish surprise occurs, pushing the pair towards 0.6570. Conversely, a breach of 0.6400 support may lead to a retest of 0.6347.
Summary and Analysis
The RBA’s decision to maintain interest rates unchanged in August reflects cautious optimism amidst inflation concerns. While the AUD faces pressure in the short term, market reactions post-announcement will determine the currency’s direction. Traders should monitor key levels at 0.6400 and 0.6500 for potential breakout opportunities based on the RBA’s decision.