RBA March Meeting Minutes preview and what comes next for the AUD/USD

Release date

Wednesday, 21st of March at 11.30 am, AEDT will see the release of the minutes from the RBA’s March Board meeting. At the meeting, the RBA raised the cash rate by 25bp from 3.35% to 3.60% and softened its month-old hawkish guidance.

The dovish backflip came following softer-than-expected growth numbers for the December quarter, lower-than-expected wages growth and an easing in the monthly CPI indicator, including sharp falls for new dwelling costs, holiday travel and clothing.

What to expect?

In a speech the very next day, the RBA Governor Philip Lowe noted that while further tightening of monetary policy would be required to bring inflation back to target, the RBA Board discussed that they were close to the point where “it will be appropriate to pause interest rate increases to allow more time to assess the state of the economy.”

The meeting minutes will therefore be scanned for more details about the RBA’s dovish shift, including what moves in interest rates it considered at the Board meeting and the criteria around them.

In some respects, the past week's events have made the RBA’s dovish shift and talk of a pause timelier. For the better part of 12 months, central banks have been attempting to play catch up to the expectations of higher rates priced into interest rate markets.

AUD/USD

Following the events in banking over the past week, interest rate markets are now pricing in rate cuts. Here in Australia, the expected RBA terminal rate, which was at 4.19% a few weeks ago, is now at 3.60% and includes a full RBA rate cut by August.

In theory, expectations of a lower RBA cash rate undercuts support for AUD/USD. However, a similar dovish repricing has occurred in the US rates market. One more Fed rate hike is expected this week, taking the Fed Funds to a range of 4.75% - 5% before 100bps of rate cuts into early next year.

AUD/USD technical analysis

In our most recent article on the AUD/USD here last week, we noted that while the pair had been given plenty of reasons to trade lower towards .65c (dovish RBA, hawkish Fed, risk aversion selling), the downside follow-through we had been expecting had not yet eventuated.

Its downside progress was further impeded into last week's end by the release of robust AU labour force data and a surprise PBOC 25bp RRR cut on Friday.

Nonetheless, while the AUD/USD remains below the 200-day MA and a sequence of highs in early March .6765/85 area, we remain with the bearish bias looking for a test and break of .6500c. Aware that should the AUD/USD see a sustained move above resistance at .6565/85, it would negate the bearish bias and allow a more constructive picture to emerge.

AUD/USD daily chart

1. TradingView: the figures stated are as of March 20th, 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.