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RBA Meeting Minutes Preview and what comes next for the AUD/USD?

The RBA Board meeting minutes are expected to reiterate the hawkish sentiments from the June meeting, providing support for the resurgent AUD/USD.

AUD Source: Bloomberg

The Minutes from the Reserve Banks meeting in June are scheduled to be released Tuesday, June 20, at 11.30 am. At the meeting, the Reserve Bank of Australia (RBA) surprised the market by raising the cash rate by 25 basis point (bp) from 3.85% to 4.10%.

Choosing to look through softer labour market and retail sales data in May, the RBA focused on elevated inflation, rising unit labour costs, wages, and poor productivity.

“While goods price inflation is slowing, services price inflation is still very high and is proving to be very persistent overseas. Unit labour costs are also rising briskly, with productivity growth remaining subdued.”

The RBA retained its tightening bias and noted that a further tightening of “monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve."

The Board meeting minutes are expected to reiterate the hawkish sentiments outlined above and will be closely scrutinised for more background behind last month’s rate hike, clues around how high rates might go and what factors might see the RBA pause its rate hiking cycle.

Following last week’s red-hot Australian Labour Force report, the interest rate market is currently pricing in a 50% chance of a 25 bp rate hike at the RBA’s July meeting, which would take the cash rate to 4.35%. For the record, we think the RBA will hike rates by 25bp in July and again in August, taking the cash rate to 4.6%.

RBA Cash Rate Source: RBA
RBA Cash Rate Source: RBA

AUD/USD Technicals

The AUD/USD stormed higher last week at .6887 (+2.01%), supported by a trifecta of tailwinds - a Federal Reserve (Fed) pause, a red-hot AU labour force report and rate cuts/stimulus in China.

The AUD/USD’s break above 16-week range highs .6820/30 puts .7000c and then the YTD Feb .7157 high on the market’s radar.

We expect buyers to operate on dips towards .6820, leaning against support formerly resistance .6800/70ish.

AUD/USD chart Source: TradingView
AUD/USD chart Source: TradingView

This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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