As expected, the Reserve Bank of Australia's June meeting was just passing through. The regulator kept all the parameters of monetary policy in the same form, stating that key decisions on QE will be made at the end of the next meeting, that is, in July. The market expected a similar result, so the Australian dollar reacted minimally to yesterday's event. Nevertheless, the June meeting left its mark: the AUD/USD's upward momentum faded, preventing buyers to test the level of 0.78 once again.
After yesterday's meeting, the RBA kept its key interest rate at a record low of 0.10%. In addition, it left the target level of the yield on 3-year government bonds at the same level (0.10%), as well as the parameters of the current government bond purchase program unchanged. At the same time, the RBA members restated that the rate level will not be raised until the actual inflation "steadily settles" in the target range of 2-3%. According to members of the Central Bank, this is unlikely to happen before 2024.
In general, the rhetoric of the accompanying statement was quite optimistic. The regulator focused on the positive aspects of the latest releases while concealing the negative and rather disturbing trends. First of all, this concerns the sphere of the labor market. It can be recalled that the May data reflected a mixed picture. On the one hand, the unemployment rate fell to 5.5%. The downward trend is already being recorded for six months in a row. The indicator actually reached the pre-crisis level – the lowest value since March 2020. But on the other hand, the unemployment rate is a lagging indicator, while more recent data signaled a slowdown in labor market growth. In particular, the growth rate of the number of employed in April declined by 30 thousand. This indicator went into the negative zone for the first time since September last year when Australia was covered by another wave of the coronavirus pandemic. The dynamics of wage growth also remain quite weak.
But despite such alarming signals, the Reserve Bank of Australia decided to optimistic. The members of the regulator said that the national economy "is recovering stronger than previously expected" and, according to available forecasts, it will continue to recover in the near term. At the same time, they quite peacefully commented on the frankly failed data on the growth of inflation. It is worth noting that the overall consumer price index in the first quarter of this year came out at 0.6%, instead of the projected growth to 0.9%. The indicator has been declining for the second quarter in a row, reflecting a slowdown in inflation. Similarly, core inflation was also disappointing – the core CPI came out below the forecast levels both in monthly and annual terms. However, RBA members in an accompanying statement only indicated that the recovery in the growth rate of inflation and wages is expected in the second half of the year, but this increase is likely to be gradual and small.
In other words, the Central Bank has left out many signals and aspects of recent macroeconomic reports. In my opinion, the regulator deliberately limited itself to vague wording and slick phrases, since key decisions will be made at the July meeting. In an accompanying statement, the Central Bank indicated in a separate line that in July, the Reserve Bank will consider whether to maintain the yield of 3-year bonds maturing in April 2024 as a target, or switch to securities with an expiration date on November 24. Most importantly, the RBA will consider further bond purchases at its July meeting.
At the end of the June meeting, the Australian dollar was under slight pressure. Apparently, traders were disappointed by the lack of any hawkish hints from the Central Bank. However, the AUD/USD bears could only extinguish the upward momentum, but could not develop a downward movement. In general, the pair remained within the wide price range of 0.7700-0.7800, within which the AUD is trading for the fifth week in a row.
During Wednesday's Asian session, the AUD/USD pair was under additional pressure, reacting to the published data on the growth of the Australian economy in the first quarter. The indicator reached 1.8% in quarterly terms, exceeding the forecast values (1.5%). But at the same time, it came out at the level of 3.2% in the fourth quarter of 2020, and 3.4% in the third quarter. Apparently, traders paid attention to the downward trend, ignoring today's positive release.
Technically, almost all trend indicators indicate uncertainty. On the daily chart, the AUD/USD pair is in the Kumo cloud and between the Tenkan-sen and Kijun-sen lines. The price is also located between the middle and lower lines of the Bollinger Bands indicator, which indicates a downward pressure. To talk about the prospects for the development of the upward trend, AUD/USD buyers need to leave the Kumo cloud and consolidate above the level of 0.7785 (Kijun-sen line). In this case, the Ichimoku indicator will form a bullish "Line Parade" signal, opening the way to the main resistance level of 0.7850 (upper line of the Bollinger Bands on the same time frame).
In turn, the bears should break through the level of 0.7700, and consolidate below 0.7690 level (lower border of the Kumo cloud). If so, we can talk about the development of the downward trend, which will return the pair to the range of 0.7550-0.7650, within which it was traded from the end of March to mid-April.