Australian markets will be preparing for volatility in financial products early this afternoon when the Reserve Bank announces its latest rate decision. It is very unlikely that we will see any move in the rate today, but once again, the message we receive from the statement and press conference will probably lead to some strong moves in the Aussie dollar.
Currently, there is a disparity between market pricing— which has the RBA cutting at least 25 basis points by year-end— and the message we are receiving from RBA Governor Michele Bullock, which is that we won’t see any cuts until 2025. Certainly, the fact that the Fed cut 50 basis points last week will factor into the RBA’s thinking. Of course, the Reserve Bank is starting from a lower base, but overall, they will focus on the local market, and many economists think that it could be some time before the RBA pushes the button.
So, the likely market reaction will depend on how hawkish the RBA has been since its last meeting. Given that employment data has remained strong and the unemployment rate is holding around the 4.2% level, there is a risk for Michele Bullock and her team to remain relatively bullish. Despite political rumblings over the last couple of days, this makes a lot of sense, given that the data has moved away from the bank’s expectations since its last meeting.
The Aussie dollar has hit a yearly high in the last couple of days, and a resiliently hawkish RBA could see it break into fresh topside territory from a technical perspective. Strong long-term resistance on the weekly chart now comes in around the 0.6880 level, and a break above here opens the way for a move up to challenge the 2023 highs near 0.7150. Conversely, a change in perspective from the central bank should see the Aussie fall back strongly into recent ranges, with initial support now sitting well below current levels around 0.6623, where the recent monthly low and the 200-Day Moving Average combine.
Resistance:
- Resistance 2: 0.7157 – 2023 High
- Resistance 1: 0.6885 – Trendline Resistance
Support:
- Support 1: 0.6623 – September Low and 200-Day Moving Average
- Support 2: 0.6376 – Trendline Support
