RBA preview: will the AUD/USD rally continue?

RBA preview and what comes next for the AUD/USD

After a rip higher at the end of last week, the AUD/USD closed 2.83% higher at .6514, its highest close in three months. The AUD/USD extended its post-FOMC rally following Friday night's soft non-farm payrolls data, which raised hopes the Fed has ended its rate hiking cycle, and is on track to deliver a soft landing.

The events of last week left the US interest rate market pricing in a 25bp rate cut from the Fed in June, and a total of 100bp of cuts in 2024. In contrast, before tomorrow's RBA meeting, the Australian interest rate market is pricing in 1 ½ rate hikes (37bp) before the middle of 2024, with only a slim chance of a rate cut before year-end.

Below is a full preview of what to expect from tomorrow's all-important RBA Board meeting.

RBA interest rate decision (Tuesday, 7 November at 2.30 pm AEDT)

At its meeting in October, the RBA kept its cash on hold at 4.10% for a fourth consecutive month. The RBA's statement under new Governor Michele Bullock was little changed, and a tightening bias was retained.

Hawkish RBA communique, initially observed in the meeting minutes released in mid-October, has put the market on notice ahead of tomorrow's board meeting.

"The Board has a low tolerance for a slower return of inflation to target than currently expected. Whether or not a further increase in interest rates is required would, therefore, depend on the incoming data and how these alter the economic outlook and the evolving assessment of risks."

Currently, the rates market is assigning a 50% probability of a 25bp rate hike from the RBA to 4.35%. Given the political debate around whether Q3 inflation data represented a "material" change, it will be a close call.

For the record, we expect the RBA to look through the political noise and raise rates tomorrow by 25bp to 4.35%. We expect a tightening bias to be retained in recognition of the run of stronger data outlined below.

• In September, the unemployment rate fell to 3.6% vs 3.7% expected.
• Q3 Inflation (Trimmed mean) increased to 5.2%YoY vs 5.0% expected.
• Q3 PPI rose by 1.8% vs 0.4% previous.
• Q2 GDP printed at 2.1% YoY vs 1.6% expected.
• Retail Sales for September increased by 0.9% vs 0.3% expected.

RBA cash rate

AUD/USD technical analysis

In our update last week here we noted that the most recently formed weekly candle displayed "a loss of momentum type that suggests the AUD/USD is trying to base at last week's .6270 low."

After busting through resistance at .6400c, the AUD/USD starts the week, eyeing more significant resistance at .6520/30 from highs in August and September. Should the AUD/USD close above here post tomorrow's RBA meeting, it would confirm a medium-term low is in place in the AUD/USD at the recent .6270 low and open up a move towards the next layer of resistance at .6600/20, coming from the 200-day moving average and horizontal resistance.

AUD/USD daily chart

• _{Source Tradingview. The figures stated are as of 6 November 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}