FX.co ★ AUD/USD: Traders ignored RBA's hawkish position and follows greenback

The AUD/USD currency pair continues to decline steadily, despite hawkish signals from the Reserve Bank of Australia. The minutes of the RBA's February meeting, published yesterday, reflected the strong attitude of the regulator's members, who expressed their willingness to raise the interest rate within the next few months. The central bank refuted circulating rumors of a possible pause. But AUD/USD traders actually ignored this message: the aussie continues to follow the greenback, which, in turn, continues to strengthen its position across the market.

What the RBA minutes say

The AUD/USD pair was under pressure a few weeks ago after the release of key data on the growth of the Australian labor market in January. The data turned out to be weak in all respects: the unemployment rate rose to 3.7%, and the increase in the number of employed again turned out to be in the negative area. With a growth forecast of 20,000, a decrease of 11,500 was recorded. The negative dynamics of this indicator was due solely to the decline in full-time employment, while the part-time employment indicator, on the contrary, showed a strong growth.

Note that the December Australian non-farm report also reflected the worsening situation in the labor market, so many analysts assumed that the minutes of the February meeting of the RBA would be dovish, even despite the growth of inflation indicators (consumer price index in Q4 unexpectedly exceeded forecast values). But the document published yesterday was clearly hawkish.

In particular, the text of the minutes indicated that the Governing Council was considering a 25 or 50 basis point rate hike in February. The option of a pause was not considered at all. Recall that the RBA slowed down the pace of tightening of the monetary policy (up to 25 points) as far back as last autumn, that's why the announced option of a 50-point hike, which was "on the table" of the members of the regulator, demonstrates the hawkish attitude of the central bank. It signals that the RBA is considering two scenarios: either the central bank maintains the current pace or doubles down on the effort, returning to a 50-point rate of increase.

That said, the minutes indicate that the further pace and duration of monetary tightening will "depend directly on incoming data and the Board's assessment of the inflation and labor market outlook." This is a rather streamlined phrase, which suggests that the RBA has "tied" its further decisions to the dynamics of inflation growth.

In general, the document released yesterday reflected the intention of the RBA to raise the rate not only in March, but also in May (it is too early to talk about further prospects). At the same time, judging by the text of the February minutes, the central bank is considering two options: raising the rate by 25 points or by 50.

Thus, the central bank de facto ruled out the option of a possible pause and guaranteed the maintenance of a hawkish rate at least until the end of the spring. Such hawkish attitude should promote the development of the upward trend. However, the aussie has received support from the RBA at a time when the greenback is gaining momentum across the market.

Waiting for Fed minutes

At the end of the U.S. session on Wednesday, another important document will be released: the minutes of the Fed's February meeting. The hawkish tone of this document may provide additional support to the U.S. dollar, which already feels quite confident against the background of strong non-farm payrolls and the combative mood of many representatives of the Federal Reserve. For example, one of the most influential members of the Fed—New York Fed President John Williams—has repeatedly stated that the regulator is likely to raise the rate to 5.5% (previously, the final level was assumed at 5.1%). At the same time, he urged the Fed to keep the rate at a high level "for several years."

In one form or another, the hawkish position was voiced by other representatives of the Fed. The general essence of the voiced messages is that the regulator "has a lot of work to do" to control inflation.

Conclusions

The apathetic reaction of AUD/USD traders to the hawkish minutes of the RBA suggests that the Aussie is trading in the wake of the U.S. currency. The U.S. dollar, in turn, enjoys support from the Fed, whose representatives have tightened their rhetoric in response to a slowdown in inflation. Such a fundamental background contributes to the further development of the downward trend.

Technically, the pair on the daily chart has overcome the 0.6850 support level (upper boundary of the Kumo cloud on D1) and is currently falling towards the bottom of the 68th figure. The next price barrier, which acts as the nearest target for the downward movement, is 0.6770. The main target of the downward trend is the level of 0.6720 (the lower boundary of the Kumo cloud on the same timeframe).