RBA Minutes Drive The Aussie Lower

The Australian dollar fell to the bottom of the pack following today’s RBA minutes, as traders questioned RBA’s confidence in their labour market forecasts.

RBA held rates at 1.5% earlier this month and provided what appeared to be a fairly-balanced and neutral statement. We’d noticed that RBA remained confident in the labour market picking up, but it was also the essential ingredient to fend off a dovish stance. So, when the minutes discussed cutting if employment faltered, traders took it as a sign that perhaps the RBA were not as confident with the labour market as they’d been letting on, which saw traders drive AUD to the bottom of the pack.

Still, it’s worth remaining level headed as it would be irresponsible for RBA not to discuss various scenarios, especially given that they’re neutral. So, like many other central banks, it’s all about the data and this makes Thursday’s employment data and next week’s CPI the more important. If the data goes against them, we have the playbook for a cut and to sell AUD. Yet today’s weakness appears like a knee-jerk reaction ahead of the facts, which could see its downside as limited ahead of these key data points.

Key points from RBA’s April minutes:

No strong case for a near-term move in interest rates
A rate cut would be “appropriate” if inflation stayed low and employment trended up
Likelihood of a rate hike is low, given weak levels of inflation
Economic effect of a cut would be less than previously
Inflation likely to remain muted for some time
Expects further gradual progress with labour market and CPI
Slow growth at odds with improving labour market.

Today’s biggest mover is AUD/JPY, currently trading -0.46% lower. As Matt Weller flagged on Friday, AUD/JPY broke out of its 3-month range and today’s ‘dovish’ minutes has helped the pair retrace towards key support. For now, we’re patiently waiting to see if AUD/JPY can build a base above the original breakout level or, at the very least, hold above the bullish trendline on the four-hour chart. If the trend can hold, 80.73 is a likely interim resistance level, before the 82.20 highs come into focus as part of a 230-pip measured move from the prior range.

AUD/USD struggled to re-test 72c ahead of the minutes, and today’s reaction has driven it back below the December trendline. Trading the daily timeframe has proven to be ricky, with most sessions switching direction and ranges overlapping (the opposite qualities we want from a decisive move). Therefore, whilst AUD/USD may have seen an interim top on the daily chart, momentum may be more favourable to intraday traders. Given the choppy nature of price action on the daily, we don’t think it’s a market to outstay ones’ welcome on, although 0.7110 support could provide bears with near-term target.

StoneX Financial Ltd (trading as "FOREX.com") is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, FOREX.com does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date.

This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it. No opinion given in this material constitutes a recommendation by FOREX.com or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although FOREX.com is not specifically prevented from dealing before providing this material, FOREX.com does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Financial Ltd. StoneX Financial Ltd is a company incorporated in England and Wales with UK Companies House number 05616586 and with its registered office at 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is authorised and regulated by the Financial Conduct Authority in the UK, with FCA Register Number: 446717.

FOREX.com is a trademark of StoneX Financial Ltd. This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy. FOREX.com products and services are not intended for Belgium residents.