FX.co ★ AUD/USD. RBA October meeting: Preview

The next meeting of the Reserve Bank of Australia will be held during the Asian session on Tuesday. This is by no means a passing meeting – based on its results; it will be possible to draw certain conclusions about the further pace of tightening of the RBA's monetary policy. The intrigue about this remains: there is still no consensus in the market about how much the regulator will increase the interest rate. Of course, there is a so-called "baseline scenario" that most currency strategists talk about. Still, some experts question the aggressive-hawkish attitude of the RBA. And it is not unreasonable, given the previous rhetoric of the head of the Central Bank and the tone of the minutes of the September meeting. All this suggests that the Australian dollar may demonstrate strong volatility tomorrow – not only paired with the greenback but also throughout the market.

The first alarm bells for the Aussie sounded at the beginning of last month when the results of the September meeting of the RBA were announced. In particular, the regulator has clarified that the interest rate has approached the neutral level. This fact allows the Central Bank to be flexible about the pace of rate increases. The head of the RBA, Philip Lowe, also added fuel to the fire. At the final press conference, he said that the size and timing of further increases "will be determined by incoming data and the prospects for inflation and the labor market." At the same time, he separately stressed that the regulator does not adhere to a pre-planned plan: "The Central Bank does not set a clear trajectory. All decisions will be taken from meeting to meeting." By the way, a month earlier, the phrase about the termination of emergency monetary support was excluded from the text of the August accompanying statement. This wording was present in the text of previous meetings.

The RBA continues to implement the hawkish course of monetary policy: in September, the Central Bank once again raised the rate by 50 points, reaching 2.35%. However, following the results of this meeting, the Australian dollar was under significant pressure. Traders concluded that the regulator would be inclined to implement a more moderate rate increase in the future. These concerns intensified after the publication of the minutes of the September meeting. It turned out that the Central Bank seeks to return inflation to the target level "while maintaining the stability of the economy." The text of the protocol states that the members of the regulator "are quite determined in the fight against inflation," but at the same time, ways to achieve this goal "should take into account the risks to economic growth and employment." It is also indicated that "interest rates have been raised quite quickly and are approaching normal settings." At the same time, RBA officials stated that the Australian labor market "remains in deficit, indicating that the economy is having difficulty meeting the level of aggregate demand."

It should be noted here that the latest data on the Australian labor market (published after the September meeting and after the publication of the minutes of this meeting) came out in the "red zone," disappointing AUD/USD traders. According to several experts, the published figures will not allow the RBA to show excessive aggressiveness. Still, at the same time, they will not become an obstacle to increasing the rate by a 25-point step at the three remaining meetings this year.

To date, the basic scenario of the October meeting of the RBA assumes a 50-point rate increase. But, for example, analysts at Scotiabank have warned their clients that the regulator may limit itself to a 25-point increase. They refer not only to the minutes mentioned above of the September meeting but also to statements by the head of the RBA, Philip Lowe. Two weeks ago, he said that the regulator's members would decide whether to raise the rate by 25 or 50 points at the next meeting. Continuing this thought, Lowe added that "at some point," the regulator will not need to increase the rate by 50 points.

"We are getting closer to this moment," Lowe summed up.

In turn, the deputy head of the Reserve Bank, Michelle Bullock, also said at the end of September that "at some point," the regulator will consider the option of slowing the pace of rate increases. At the same time, he noted that Australia is "in a better position" in terms of inflation (than some other countries), and the Central Bank should take into account the risks of tightening monetary policy in the context of the impact on economic growth and employment.

In other words, the representatives of the RBA increasingly sound the message that the aggressive pace of rate hikes is not fully justified and can harm the growth of the country's economy. Therefore, it can be assumed that this message will become the key leitmotif of the October meeting. And regardless of how much the RBA raises the rate, the Aussie may come under pressure. Of course, if the Central Bank, contrary to the forecasts of most experts, increases the rate by 25 points, the Aussie will collapse throughout the market, and a pair of greenbacks will update the annual minimum. But even if the basic scenario is implemented (a 50-point increase), Aussie is unlikely to act as a beneficiary of the current situation.

Thus, the southern trend of AUD/USD may continue following the results of the October meeting. However, it is advisable to make trading decisions on the pair after the first emotions subside – there is a risk of false price movements to the north. The target of the southern movement is the 0.6370 mark (the lower line of the Bollinger Bands indicator on the D1 timeframe).