AUD/USD falls ahead of RBA meeting

• Australian dollar falls below 0.6400
• MI Inflation Gauge comes in at 0%
• RBA expected to hold rates at 4.1%

The Australian dollar has started the week considerably lower. In the European session, AUD/USD is trading at 0.6397, down 0.55%.

MI Inflation Gauge comes in at 0%

The Melbourne Institute’s Inflation Gauge was flat in September after 12 straight months of increases. This follows a 0.2% m/m in August and missed the consensus estimate of 0.4% m/m. This reading follows last week’s CPI release, which showed that consumer inflation rose to 5.2% y/y in August, up from 4.9% m/m a month earlier. The spike in inflation is unlikely to concern the Reserve Bank of Australia, as the rise was related to higher energy and housing costs.

The RBA meets on Tuesday, and the markets are expecting the central bank to pause rates at 4.1% for a fourth straight time. According to the ASX 30-day interbank cash rate futures as of 28 September, there is a 93% probability of a pause at the meeting, with a 7% chance of a quarter-point trim.

Tuesday’s meeting will be the first chaired by Michele Bullock, who so far hasn’t veered from the stance of her predecessor, Philip Lowe. Bullock has said that rate hikes remain on the table, but it appears a safe bet that the RBA will remain on the sidelines tomorrow, especially with the economic slowdown in China, Australia’s largest trading partner. Bullock has said that the RBA will make its rate decisions based on the data, and with third-quarter inflation not coming out until later this month, that would push any rate moves to at least November.

In the US, manufacturing has been in a deep hole, with the PMI reeling off 10 straight declines. The trend is expected to continue on Tuesday, with the ISM Manufacturing PMI for September expected at 48.9, compared to 47.9 in August.

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AUD/USD Technical

• AUD/USD is testing support at 0.6423. The next support line is 0.6345
• There is resistance at 0.6514 and 0.6592

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