RBA meeting preview: four questions ahead of this month’s meeting

When is the RBA meeting next?

The RBA will meet on Tuesday, 5th of April 2022 at 2.30PM.

Four key questions for this RBA meeting:

1. What will the RBA do with policy?

This meeting is a ‘live’ one, although based on the RBA’s recent rhetoric, it’s more likely than not that the central bank will keep its policy unchanged. Backward looking data is strong, and points to an economy close to full employment with inflation within the RBA’s 2-3% target band. Market pricing implies there’s a small chance of a rate hike from the RBA. However, given the extreme dovishness from the RBA lately, not to mention the prospect of a Federal election in May, Governor Lowe and his team have the wriggle room to argue that more time and fresh data is needed to conclude that inflation is 'sustainably within' the RBA’s target band. The RBA will likely point to subdued wage growth as justification to hold out on hiking rates.

2. Is a rate hike this year more than just ‘plausible'?

In recent speeches, RBA Governor Lowe has suggested that a rate hike this year is ‘plausible' but is not its base case. This stands in contrast to economists’ forecasts and interest rate pricing – the latter implying the first rate hike will arrive in June, and will kick-off a round of 7 hikes before the end of 2022, to take the cash rate between 1.75% and 2.00%. With recent data coming in stronger than expected, and high job vacancies and other inflation data pointing to strong price growth going forward, the markets will be looking for explicit or implicit communication from the RBA at this meeting that it now believes rates could be increased this year.

3. Could inflation be about to 'run-away'?

Owing partially to lower wage growth, and relatively weaker demand than some other developed economies, the Australian economy is yet to suffer from the very high inflation evident in other parts of the world. But with demand on aggregate picking up, energy prices surging because of the conflict in Ukraine, and pandemic related supply disruptions persisting, risks are building that inflation may be on the cusp of overshooting the RBA’s target band. The Melbourne Institute’s inflation gauge showed a noteworthy lift in prices across the economy in March of 0.8%. That adds weight to the argument that the next CPI release will show above target inflation, and rates will need to be hiked in the not-too-distant future.

4. How could this meeting impact the AUD/USD?

Price action for the AUD/USD has been undoubtedly bullish recently, with surging commodity prices due to the Russian invasion of Ukraine putting upward pressure on the pair. This, of course, comes despite a broadly stronger US dollar, and at times, heightened volatility and bearish sentiment in global markets.

The AUD/USD has pushed through its 200-day MA, signaling a possible long-term trend reversal, with the pair pushing above the 75-handle and levels not seen since the notorious 'Powell pivot' in November. In the short-run, momentum to the upside does appear to be slowing for the AUD/USD, portending a possible pullback. Support sits around 0.7480, which, if broken, may open a re-test of support around 0.7400. Resistance in the meantime looks to be around 0.7550/60.

Follow Kyle Rodda on Twitter @KyleR_IG

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