AUD rises, RBA minutes next

The Australian dollar has started the week in positive territory, extending the gains seen on Friday.  AUD/USD is currently trading at 0.7364, up 0.47% on the day.

Markets await RBA minutes

It’s a light calendar in  Australia this week, with no major economic releases. The highlight from Down Under will be the RBA minutes from the November meeting, which will be released on Tuesday. The RBA didn’t adjust the cash rate or its bond-purchase programme at the meeting, but did abandon its yield curve, which was an important component of its monetary policy. The central bank retreated after trying unsuccessfully to defend a 0.10% target on 3-year Australian bonds, and the Australian dollar fell sharply in response.

Given this latest drama with the RBA, the minutes could prove to be a market-mover. With core CPI rising to the bank’s target band and inflation expectations above 4%, the RBA’s message that inflation is transitory is becoming a tough sell to sceptical markets. Governor Phillip Lowe has not veered from this stance that the bank will not raise rates before 2024, but I would not be surprised if the minutes show that some bank members are in favour of an earlier date.

We continue to see a disconnect between RBA guidance and market expectations, which is certainly not an optimal situation, as it puts the RBA’s credibility at risk. The markets are much more hawkish than the RBA and have priced in several rate hikes for 2022, with the cash rate projected to approach 1.0% by the end of next year. Will the RBA stick to its guns, or will it become more hawkish? Investors will be hoping for some clarity, or at least some clues from bank policy makers in the minutes as well as at the December policy meeting.

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AUD/USD Technical

• There is resistance at 0.7416. 0.7502 is next
• There are support lines at 0.7261 and 0.7192

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