The minutes of the June RBA meeting had a negative impact on the Australian currency. It was disclosed that the central bank members deliberated on two scenarios: a 25-point rate hike and maintaining the current status. Ultimately, the Reserve Bank further tightened monetary policy parameters due to more compelling arguments favoring another rate hike. However, the document indicated that these arguments were delicately balanced. The cautious wording in the minutes did not satisfy AUD/USD buyers, leading to the pair testing the 0.67 level at present (although the Australian dollar attempted to surpass the 0.6900 target on Friday).
All doubts are against the Australian dollar
Based on the reaction of AUD/USD traders, they anticipated a more hawkish stance from the RBA, particularly considering the optimistic language used in the accompanying statement by the central bank. The final communique mentioned that future "tightening" of monetary policy may be necessary to ensure greater confidence in achieving the inflation target within a reasonable timeframe. The document also highlighted that upside risks to the inflation forecast had significantly increased after the May meeting, prompting the central bank to take countermeasures.
In essence, the accompanying statement provided clear indications of a potential rate hike in upcoming meetings. These conclusions bolstered the Australian dollar's strength against the US dollar.
However, the RBA minutes dampened the enthusiasm of AUD/USD buyers. Despite the decision in favor of further rate hikes made in June, the preceding discussions suggested that the central bank might choose to keep rates unchanged at the next meeting in July.
According to economists at Commerzbank, inflation will play a critical role in this context. The consumer price index for May, which will be released next week on June 28, will be crucial. If May's inflation follows a trajectory similar to that of April, the likelihood of a rate hike in July will significantly increase. Conversely, a negative release will reduce this probability. It is worth noting that contrary to most experts' predictions of a decrease in inflation in April, the CPI rose. Despite the forecasted decline to 6.2%, the index increased to 6.8% monthly. After three consecutive months of decline, the indicator reversed course.
The next RBA meeting is scheduled for July 12, making this release of utmost importance for the Australian dollar. Judging by the reaction of AUD/USD traders to the moderate tone of the June meeting minutes, the market began pricing in another rate hike in July following the publication of the "Australian Non-Farm Payrolls." Any doubts on this matter now work against the Australian dollar.
In other words, given the rise in April's inflation and strong labor market data, the RBA minutes acted as a dampener for AUD/USD buyers. As a result, the Australian dollar faced significant pressure, relinquishing some of the gains it had made the previous week.
The sales of AUD/USD were premature.
However, opening short positions on the AUD/USD pair is not advisable due to the anticipation of Federal Reserve Chair Jerome Powell's testimony in Congress. This event holds significant importance for the US dollar, especially considering the conflicting outcomes of the June Federal Reserve meeting. If Powell emphasizes the risks and consequences of a banking crisis while acknowledging a decline in inflation indicators, it will also exert pressure on the US dollar. In such a scenario, buyers of AUD/USD may re-enter the market around the 0.68 level.
Powell's two-day testimony will commence on Wednesday, June 21. Therefore, the present price movements should be cautiously approached as the Federal Reserve Chair can easily alter the fundamental backdrop for dollar pairs.
From a technical perspective, the AUD/USD pair, as seen on the daily chart, remains positioned between the middle and upper Bollinger Bands lines, and it is also situated above all the lines of the Ichimoku indicator, including the Kumo cloud. This combination suggests a preference for long positions. However, the technical outlook has already changed on lower timeframes (H4 and below). Specifically, on the four-hour chart, the pair is currently testing the lower Bollinger Bands line and is situated below the Tenkan-sen and Kijun-sen lines but still above the Kumo cloud.
In conclusion, despite the disappointing RBA minutes, engaging in sales of AUD/USD remains risky since Jerome Powell could also disappoint dollar bulls with his cautious and dovish rhetoric. The uncertainty will be resolved tomorrow following the conclusion of Powell's first testimony in the House of Representatives.