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

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 RBA surprised the market by raising the cash rate by 25bp 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 25bp 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%.

AUD/USD Technicals

The AUD/USD stormed higher last week at .6887 (+2.01%), supported by a trifecta of tailwinds - A 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.