View minutes of the monetary policy meeting of the reserve bank board.
Each time the Aussie rallies we get flooded with commentary of jawboning.
Whilst I am not 100% certain a jawbone won't be present in tomorrow's statement, I am quietly confident this will not be the case. Glenn Stevens has proven his ability to not flinch during (what I would consider to be) relatively healthy reracements within the bearish decline since breaking below parity. Additionally, data over the past month has been improving, with key metrics such as employment and growth contributing to the positive sentiment.
Above we can see the Aussie trades higher against most major currencies this year as it has taken advantage of improved risk sentiment, along with higher Golf and Oil prices. However there is already a growing belief that WTI has topped and Gold could be due a retracement which could add pressure onto the Aussie.
Glenn Stevens doesn't get wrapped up in the day to day headlines
If we are to follow daily headlines then we will see no shortage of the suggestion to jawbone after seeing the Aussie perform bullish rallies, but Mr Stevens is a long-term thinker and still sees the Aussie Dollar likely to trade lower over the medium-long term due to:
- RBA's belief that FED are still on the rate hike path
- Commodity prices and terms of trade will naturally drag it lower
Perhaps if we break convincingly above the 80 handle I may feel more compelled to suggest a jaw boning is pending but until then the RBA is more likely to remain 'reserved'.
A word cloud of the March minutes shows growth is still a popular word among RBA members.
Within the March minutes the RBA concluded that they still have reasonable expectations for growth and the current rate of 2% is appropriate.
- Labour markets need to see continued improvement
- Time will tell if turbulence seen in Q1 will effect global and domestic demand
- If low inflation continues then further easing would be appropriate
Since the minutes were taken (on 1st March) we have seen unemployment drop to -5.8% from 6%, global PMI data pick up and domestic GDP beat expectations on a quarterly basis. These forces combined make it very unlikely to see either further easing or any significant changes to the previous statement in Q2 . TD securities inflation read (which aims to predict inflation sooner than the official read) dropped to 1.7% compared with 2.1% but I cannot see the RBA adjusting their policy on this read alone, especially when we still have the trimmed mean to be released and time is still on our side.
RBA Shadow Board remain hawkish over the next 6-12 months
The Shadow board meet the day prior to an RBA rate decision to provide their recommendation to the RBA over their cash rate decision. RBA are under no obligation to take any notice of their suggestion but I wanted to show how hawkish they are over the next 6-12 months, which is in stark contracts to the majority of developed economies on am easing cycle.
If anything this could be taken as a contrarian signal because from memory they have remained net-hawks during the entire easing cycle and Aussie decline. Where myself and the shadow board do agree is they are unlikely to make any rate changes tomorrow.
Technically we remain within a correction to the primary downtrend
The break above 74c could be considered as a double bottom confirmation, but the purist may argue for a higher 2nd trough. The pattern, if successful would stall around 80c and increase the likelihood of any jawboning. Or maybe not. Take note of the 38.2% retracement around 0.7840 and recent highs at 0.7722 which may provide as a zone of resistance going forward.
As long as we remain above 0.74 then a run towards 0.80 may could be on the cards. The likelihood of a run towards 0.80 will heavily depend on Gold remaining elevated (up over 5% this year) and the USD bulls to remain sidelined. A caveat here is some commodities such as oil and iron ore are suggesting a top is in place which may take the fizzle out of further upside over the coming weeks.
A break below 74c would see us back below the 50 month moving average and potential for a run back to the multi- year lows.
Tomorrow I favour a bullish close following the statement and the potential for AUD to continue the run up. However volatility has increased and the relationship between the swings are messier than usual, which tends to conclude with a final up burst (or two) before rolling over.
We do have decent levels of support to consider buying any volatile dips with buy-limits but the closer we get to the cluster of resistance around 0.7850 (38.2%) the greater the likelihood of a sell-off towards the trendline projected from the multi-year lows.
RBA Cash rate preview: RBA likely to remain 'reserved'
The bullishness of the Aussie cannot be denied over the previous few weeks, but bulls will be hoping for a hakwish RBA and lack of jawboning to send the Aussie up to the next leg higher.