AUD/USD, ASX 200: Three-peat of hawkish disappointment under the RBA’s new leadership

• The RBA keep Australia’s cash rate unchanged at 4.35% in December, as expected
• Relative to recent commentary, the statement was more dovish in tone
• As a result, the AUD/USD slumped while the ASX 200 climbed off its lows
• Governor Michele Bullock will speak December 12

The RBA kept the cash rate steady and delivered another dovish-tinged statement following of its December monetary policy meeting, continuing the pattern seen in the prior two meetings under the leadership of Michele Bullock. The question now for AUD/USD and ASX 200 is whether the tone reflects what the RBA is thinking, or will we see a repeat of recent months where subsequent commentary has been more hawkish in nature.

RBA continued to explain November’s decision…

The RBA spent much of the statement explaining the reasons for the increase to the cash rate delivered in November, with the remainder only acknowledging there had been little fresh information received since it met four weeks ago.

“The limited information received on the domestic economy since the November meeting has been broadly in line with expectations. The monthly CPI indicator for October suggested that inflation is continuing to moderate, driven by the goods sector; the inflation update did not, however, provide much more information on services inflation.” it said, reinforcing the view the RBA is unlikely to make rash decisions on interest rates based solely off the monthly inflation indicator.

One change was increased hawkish commentary on housing market conditions, reflecting some of the strengthening in leading indicators over recent months.

“Housing prices were continuing to rise across the country as was the number of new mortgages,” it said. “Given this, the Board judged that the risk of inflation remaining higher for longer had risen and an increase in interest rates was therefore warranted to be more assured that inflation would return to target in a reasonable timeframe.”

…But nothing on what’s happened abroad with rates expectations

Curiously, there was no acknowledgment of the significant dovish shift in rate expectations abroad which had powered asset prices higher in November. That’s unusual as the repricing elsewhere has flowed through to domestic rate expectations, seeing easing risk priced into the Australian curve for the second half of 2024.

As widely expected, the RBA retained its conditional tightening bias signalling the risk of further rate hikes, keeping the commentary identical to that offered in November.

“Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks. In making its decisions, the Board will continue to pay close attention to developments in the global economy, trends in domestic demand, and the outlook for inflation and the labour market,” it said.

AUD/USD: another post RBA meeting plunge

Like a repeat of the prior two RBA meetings, AUD/USD has fallen like a stone while the ASX 200 has moved off its lows, reflecting a perception the risk of further rate hikes has diminished. Of course, as mentioned above, whether that is correct remains an open question.

For the AUD/USD, its near-term trajectory will likely come down to whether it can hold its 200-day moving average, where it sits right now. A downside break opens the door to move back to former horizontal resistance at .6520. Even though indicators suggest otherwise, momentum to the downside appears to be building. MACD is also in the cusp of crossing over, albeit its uptrend is not threatened yet. Above, a bounce off the 200DMA will see resistance at .6600 and .6650 come into play, a move that may be determined by how the US ISM services PMI prints later in the session.

ASX 200 finding bids below 7050

For the ASX 200, the past three sessions have seen buyers move in on dips below 7050, including today. It’s too early to tell how it fill finish up, but the bullish hammer printing right now suggests another push higher may be on the cards.

The 7150 zone with horizontal resistance and 200DMA would be the first upside target for potential longs. On the downside, the 50DMA provided support late last month, suggesting that may be an initial level for those considering shorts.

-- Written by David Scutt

Follow David on Twitter @scutty