Australian dollar at 6-week low

The Australian dollar is in calm waters on Thursday. AUD/USD is currently trading at 0.7267, down 0.01% on the day. The currency remains under pressure and has dropped 3.43% in the month of November.

Will RBA bend on guidance?

The RBA remains steadfast in its rate policy, as seen from the RBA minutes. The bank reiterated it would maintain its bond purchase programme and that the cash rate would remain at 0.10% until 2024 or until wages and inflation targets are met. In a speech after the minutes, Lowe said that “the latest data and forecasts do not warrant an increase in the cash rate in 2022.” Clearly, Lowe is pushing back against market projections of a rate hike, which are more hawkish than those of the central bank.

The markets have priced in at least three rate hikes in 2022 and with inflation moving upwards, I don’t see the markets suddenly turning dovish. The ball appears to be in the RBA’s court – will it adjust its guidance, given that inflation continues to rise? Like other major central banks, Lowe has been preaching a message that inflation is transitory, but there is a growing belief that this narrative is not in sync with the facts on the ground. If the disconnect between the RBA and the markets continues, we can expect to see volatility from the Australian dollar.

Inflation remains a hot topic in the US as well, and the Fed is under pressure to accelerate its taper programme. Meanwhile, there have been a host of strong US numbers this week. Headline retail sales and the core reading both showed strong gains of 1.7% y/y in October, well above the September numbers. As well, unemployment claims and manufacturing were solid. These are positive signs about the strength of the recovery, but the markets are more focused on how the Fed plans to respond to inflation, which is not showing signs of easing anytime soon.

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AUD/USD Technical

• There are resistance lines at 0.7416 and 0.7502
• We find support at 0.7261 and 0.7192

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