AUD/USD Little Changed after RBA Minutes as it Awaits the Fed

AUD/USD Analysis

The Reserve Bank of Australia had kept rates unchanged at 4.1% for third straight meeting earlier in September, having delivered 400 basis worth of hikes since the May 2022 lift-off. Policymakers were helped in their decision, by moderating inflation and signs of cooling in the employment conditions.

On the other hand, they had kept further tightening in play, as inflation is still too high and the labor market remains tight. Nearly 65,000 jobs were added in August and the record participation rate (67%) is a sign of that tightness, although it can help cool the market.

Today's accounts of the September 5 rate hold largely reaffirmed what we knew, but also revealed that bank officials considered an 0.25% hike, adding a hawkish tilt ^[1]. AUD/USD had dropped to new 2023 lows after that policy decision and had a muted reaction to today's minutes, as it awaits a pivotal decision by the Fed on Wednesday.

Markets widely anticipate a pause and also view the current 5.5% as the terminal rate, but there is less conviction around the latter. Focus will be on the updated projections around the appropriate policy path and Chair Powell's press conference for any insights around the next path. The Fed has adopted a non-committal and data-dependent stance, but has kept more hikes firmly on the table.

AUD/USD managed to find reprieve after the post-RBA low and tries to take out 0.6475-84, which could open the door to further gains to 0.6563, but does not inspire much confidence for sustained recovery at this stage. The higher-for-longer Fed prospects and EMA200 (black line) point to downside bias and risk for new 2023 lows (0.6357) that would bring 0.6271 in the spotlight. In any case the next leg of the move, will be determined by the Fed outcome.