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Analysis

RBA more confident about rate cut, Aussie shrugs

The Australian dollar has posted slight losses on Tuesday. In the European session, AUD/USD is trading at 0.6247, down 0.18% at the time of writing.

RBA minutes hint at rate cut

The Reserve Bank of Australia minutes from the December meeting were significant although they didn’t have much impact on the Australian dollar. The minutes signaled that the RBA is increasingly confident that inflation is moving sustainably towards the Bank’s target range of 2% to 3%, but it was still early to conclude that the inflation battle had been won. Board members noted that the labor market remains tight and consumption has improved, factors which support the Bank maintaining rates.

At the December meeting, the RBA held the cash rate at 4.35% for the ninth consecutive time. The rate statement said that board members were more confident that inflation was declining and did not mention the possibility of a rate hike as it had in the previous meeting.

Will this guarded optimism translate into a rate cut in February? Let’s keep in mind Governor Bullock’s comment after the meeting, in which she said that the February rate decision would be data-dependent. The RBA would like to start the New Year with a rate cut, but it has been an outlier among the major central banks which are in the midst of an easing cycle. Bullock & Co. will be willing to press the rate trigger only if inflation moves lower as expected or key economic indicators such as job growth point lower.

In the US, data published on Tuesday indicated that durable goods orders and consumer confidence declined, but the Australian dollar couldn’t take advantage. The US economy is in solid shape and that has been reflected in the broad strength of the US dollar. Since October 1, the Australian dollar has plunged 9.8% against the greenback.

AUD/USD technical

  • AUD/USD is testing support at 0.6244. Below, there is support at 0.6224.

  • 0.6270 and 0.6290 are the next resistance lines.

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