AUD/USD Supported after Hawkish RBA Minutes

AUD/USD Analysis

The Reserve Bank of Australia had kept rates at 4.1% for the fourth straight time earlier in the month, in the first decision under Ms Bullock, its new governor. AUD/USD had dropped to fresh 2023 lows on the decision and the policy differential with its US counterpart, which pedaled the higher-for-longer narrative.

The accounts of that RBA meeting were released today with an overall hawkish bias, revealing that policymakers had considered raising rates by 0.25% ^[1]. They expect inflation to stay above the 2-3% target "for some time", noting that progress on lowering inflation has been "temporarily delayed" due to higher fuel prices, in a situation that can persist given the events that now unfold in the Middle East. More importantly, the Board touted "low tolerance" for a slower progress on inflation than currently expected and reiterated that further tightening may be required, if it proves more persistent.

The minutes showed that Australian officials are ready to hike rates again if needed, at a time when their US peers have adopted a lees aggressive rhetoric. Some Fed voters diverted from the higher-for-longer credo, such as Ms Logan, who noted that there "may be less need to raise the fed funds rate" due to the elevated long-term bond yields.

AUD/USD reacted higher to the RBA minutes and extends this week's gains, forming a double-bottom and trying to reclaim the EMA200 (black line). Daily closes above the (0.6410-45) region could pause the bearish bias and bring the 200Days EMA (0.6610-30) in the spotlight.

However, the upside appears unfriendly with multiple roadblocks. Despite this week's upbeat mood, AUD/USD remains in a precarious position, running another losing month. It is still in risk of new 2023 lows (0.6285-71), although strong catalyst would be required for breaching 0.6169.

Markets now turn to today's data dump from the US for the next leg of the move, which includes retail sales and industrial production. Moreover, Fed Chair Powell speaks at the Economic Club of New York on Thursday, just before the communication blackout kicks in. Markets will monitor his comments to see if he will validate the recent softer rhetoric of some officials or maintain the hawkish bias.