Aussie Dollar Dips on Rate Pause Discussion set for April
Markets are inherently forward-looking and so it was of little surprise to witness the AUD/USD ease off in the moments that followed the release of the Reserve Bank of Australia’s (RBA) March minutes.
The minutes revealed a step down in hawkishness as the Bank only considered a 25-basis point hike after considering 25 and 50-bps hikes in February. Admitting that the economic outlook remained uncertain, members agreed to revisit the case for a pause at the April meeting, which, if implemented, would allow more time to respond to incoming economic data.
The minutes also communicated that further tightening of monetary policy would likely be required given the high level of inflation, with labor markets still extremely tight and business surveys showing decent activity.
However, the nervousness and volatility of the last two weeks is likely to influence the Bank to err on the side of caution, where the possibility of a pause on interest rate hikes is likely to feature more prominently.
AUD/USD Technical Considerations and Levels of Interest
The AUD/USD daily chart shows a pullback after the bullish run that ensued after a solid rejection of lower prices at the April 2020 level of 0.6580. After trading above the significant longer-term 0.6680 level, the pair finds near-term resistance at the 200 day simple moving average (SMA) before the 0.6780 level. If the pullback is to extend into a larger move, a close below 0.6680 would be needed, with further support coming in at that important 0.6580.
AUD/USD Daily Chart
The monthly chart shows how far the pair has fallen from a historical point of view and if prices are to break and hold below the dotted 0.6680 level, it would highlight the 0.64 level. With the longevity of global rate hikes now in doubt, we could start to see more muted responses stemming from hike/no hike scenarios as the attention shifts to economic activity and a possible growth/credit slow down possibly taking hold of the narrative.
AUD/USD Monthly Chart
Major Risk Events Ahead
With the RBA minutes out the way there is very little Aussie-related data of real prominence for the rest of the week. Instead, the calendar is dominated with high importance US-related data and events like the crucial FOMC rate decision and accompanying economic projections – which may already be out of date given the rout in the global banking sector.
The Fed is believed to be considering a 25-bps hike or no hike at all. The decision comes down to whether the Fed believes that it, along with the US treasury and major players in the banking sector, have done enough to stem a widespread banking crisis. If the answer is yes, then we are likely to see a 25-basis point hike and if the committee decides to take a cautious approach, we may be looking at a pause for now. Of course, there are other possibilities but these appear as the outcomes with the greatest likelihood. US durable goods orders round up the week.