The Reserve Bank of Australia announced the results of its regular meeting today. As expected, it was not a "pass-through", since the regulator determined the prospects for monetary policy and adjusted the stimulating program. In general, the July meeting was dovish, except for the fact that the RBA announced a slight reduction in the volume of bond purchases.
Therefore, it should be immediately highlighted that the current growth of the AUD/USD pair is caused not by the strengthening of the Australian dollar, but by the general devaluation of the US dollar. Looking at the dynamics of the major dollar pairs, the US dollar is under pressure to some extent, reflecting the skepticism of investors towards the currency.
Now, let's return to the results of the RBA's July meeting. The regulator kept the key interest rate at a record low of 0.1%, and the target yield level on 3-year government bonds at 0.10%. The Central Bank also retained the April 2024 bond as the bond yield target (the option of shifting the focus to November 24 was previously discussed). In addition, the Reserve Bank announced the launch of the third round of QE, which will begin in September when the current round of the program ends. And while noting the recovery of the national economy, the regulator reduced the size of the stimulus program (compared to the previous two rounds). According to Philip Lowe, the RBA will continue buying government bonds at a weekly rate of 4 billion Australian dollars, instead of the current 5 billion in September and at least until mid-November. At the same time, the RBA Governor emphasized that reducing the volume of weekly purchases to 4 billion does not mean curtailing the support of the RBA.
The small inclination towards the buyers of the AUD/USD pair turned out to be one of a kind since all other remarks voiced at today's meeting were not in favor of the Australian currency. For example, RBA representatives were worried about a weak rise in inflation. It can be recalled that Australia's consumer price index has been consistently declining over the past three quarters. In the first quarter of this year, the CPI came out at the level of 0.6% with the forecast of growth to 0.9%. For comparison, it can be noted that the index was at the level of 1.6% in the third quarter of last year.
Commenting on these figures, the RBA's head noted that the increase in the interest rate does not depend on the coming of any specific date, but on the incoming key data He clarified that the creation of the necessary conditions for tightening monetary policy is associated primarily with inflation. At the same time, Lowe stated that the Central Bank still did not reach target levels both in terms of inflation and employment. According to the baseline scenario, the head of the Central Bank said that the best conditions for the start of the rate hike will be created "not earlier than 2024" since inflation is expected to reach 2% by the middle of 2023.
To sum up the results of the July meeting, Philip Lowe also noted that the Central Bank will re-analyze and reassess the situation only in late autumn, that is, at the November meeting.
Can we call RBA's meeting today "hawkish"? In my opinion, not really. A relatively small adjustment of QE does not significantly affect the Australian dollar, especially amid the inflation expectations of many market participants. But considering the latest Australian Nonfarm data, some experts allowed for a more significant reduction in incentives. It can be recalled that Australia's unemployment rate has sharply declined to 5.1% although it should have remained at 5.5% based on preliminary forecasts. This indicator shows a downward trend for the seven consecutive months. In turn, the increase in the number of employed also turned out to be better than forecasts, reaching around 115 thousand with a forecast of growth of 30 thousand. The release came out in the "green zone", but it did not impress the members of the Australian regulator. The Reserve Bank focused its attention on the inflationary dynamics, which are disappointing.
From a technical point of view, the AUD/USD pair failed to impulsively break through the resistance level of 0.7590 (middle line of the Bollinger Bands indicator on the daily chart). As soon as the price reached the "round" level of 0.7600, it attracted sellers who returned the Australian dollar to the center of the 0.75 mark. This suggests that long positions look risky, even considering the overall weakness of the US currency. On the D1 time frame, the pair is located between the middle and lower lines of the Bollinger Bands indicator, as well as below the Kumo cloud, which indicates the priority of the decline. The first downward target is the level of 0.7530, which coincides with the Tenkan-sen line in the same time frame. The main target is located almost a hundred points lower, namely at the level of 0.7470 (upper border of the Kumo cloud on the weekly TF).