On Tuesday, May 2nd, the Reserve Bank of Australia will summarize the results of its regular meeting. With a high probability, the Central Bank will keep all monetary policy parameters unchanged. This is the basic and widely expected scenario.
The May meeting of the RBA members may provoke quite strong volatility for the AUD/USD pair. The intrigue regarding the tone of the accompanying statement and the rhetoric of the RBA head persists. The inflation growth data for Australia published last week only added fuel to the fire. The release was in the "green zone": many report components exceeded forecast estimates. Now the fate of the Aussie is in the hands of the RBA leadership. If the Australian regulator members again allow the resumption of the hawkish course (hinting at a rate hike at the next June meeting), AUD/USD buyers can organize a march-rush to the north, in the area of the 67th figure. Otherwise, sellers will return to this year's price minimum (0.6575) and try to consolidate within the 65th figure. All of this suggests that one should approach current price fluctuations with great caution: tomorrow's events may "redraw" the fundamental background for the pair.
It is worth noting that over the past few weeks, RBA head Philip Lowe has voiced hawkish hints, particularly that the balance of risks is gradually leaning towards further rate hikes. Answering a question about the possible outcome of the May meeting, Lowe noted that there is no 100% confidence that the regulator will have to raise rates again, "but if the RBA holds the rate in May, it does not mean that the Central Bank will not raise it later." Commenting on rumors about a possible rate cut in the second half of the year, Lowe said that such a scenario is "too early even to discuss."
It is also worth recalling the rhetoric of the accompanying statement of the April meeting and the main theses of the protocol of this meeting. The essence of these documents is that the RBA "leaves the door open" for a rate hike. In particular, the protocol of the April meeting states that the decision on a pause "was not easy," as an unexpected surge in migration and wage growth for public servants strengthened the argument for an additional round of rate hikes. In turn, the text of the accompanying statement indicated that "some tightening of monetary policy" might be required if inflation shows an upward trend again.
The latest inflation report, published last week, reflected a contradictory situation. In annual terms, the consumer price index fell in the first quarter to 1.4%, with a forecast decline to 1.3%. On the one hand, the component was in the "green zone," but on the other hand, this is the weakest growth rate since the fourth quarter of 2021. In quarterly terms, the indicator came out at 7.0%. Again, the situation is ambiguous: on the one hand, experts expected a more significant decline (to 6.8%), but on the other hand, this is the first decrease in the indicator after five consecutive quarters of growth. In monthly terms, the index was in the "red zone": with a forecast decline to 6.5%, the indicator fell in March to 6.3%. A downward trend has been recorded for the third month in a row.
The published inflation report suggests that the RBA has no compelling reasons to resume its hawkish course, despite the "green tint" of the published figures.
Conclusions
The Reserve Bank of Australia will likely maintain the monetary policy parameters unchanged tomorrow. Despite hawkish hints from the RBA, inflation in the country is slowing down, albeit slower than most experts expected. The accompanying statement's leitmotif is the phrase that the Central Bank does not rule out a rate hike in the future but prefers to have more time to assess the consequences of tightening monetary policy.
This is the baseline scenario, which will have minimal impact on the Australian dollar. According to a Reuters survey, more than 75% of surveyed economists (26 out of 34) stated that the RBA would maintain the rate at the current level in May. The remaining eight respondents forecasted a 25-basis-point rate hike. Currency strategists at major local banks (NAB, Westpac, and ANZ) also expect the status quo to be maintained, while CBA analysts predict a 25-point rate hike. Interest rate futures imply no rate increase.
From a technical standpoint, the AUD/USD pair is on the daily chart between the middle and lower lines of the Bollinger Bands indicator and below all the lines of the Ichimoku indicator, which shows a bearish "Parade of Lines" signal. All these technical signals indicate a priority for the downward movement. The support level is 0.6570 (the lower line of the Bollinger Bands on D1). The resistance level is the middle line of the Bollinger Bands on the same timeframe, corresponding to the 0.6690 mark.