Australia’s central bank is about to restart a pause in rate hikes as new data indicates that inflation and home price growth are slowing down, supporting earlier tightening.
Most economists predict that the Reserve Bank of Australia (RBA) will maintain its cash rate at a 12-year high of 4.35% on Tuesday. The RBA delivered a protective hike last month to ensure that inflation stays on track to return to target. During the second half of this year, the RBA has not changed its stance at any other meetings.
If the RBA’s policy statement contains any surprises, the Australian dollar is expected to soar since Governor Michele Bullock has stated in the policy statement that “whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks,”.
The language in the statement is likely to draw the most attention following the RBA guidance in November, which was seen as dovish.
The Australian Dollar’s fate hinges on the RBA’s communication on the path forward on the interest rate. If Governor Bullock explicitly mentions that more rate hikes remain on the table, AUD/USD is likely to extend its ongoing uptrend. On the contrary, a dovish pause by the RBA could trigger a meaningful correction in the Aussie pair toward 0.6550.
Key technicals to trade AUD/USD on the policy outcome include the 14-day Relative Strength Index (RSI), which remains well above the midline while flirting with the overbought territory, suggesting that there is room for more upside in the Aussie pair.
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