It should be noted that several days ago, Philip Lowe, Governor of the Reserve Bank of Australia, did not rule out raising the interest rate this year. He said the regulator is expecting the economy to grow substantially in 2022, and added that an interest rate hike later this year could be possible. Rising commodity prices could lead to galloping inflation, and the regulator would react accordingly, he concluded.
However, according to today's RBA meeting minutes, not all board members share Lowe's hawkish sentiment. The Reserve Bank Board stated the regulator would not tighten its monetary policy until actual inflation settles within the 2-3% range.
In the beginning of 2022, before geopolitical tensions escalated, inflation was on the rise. The consumer price index jumped to 1.3% in Q4 2021, up from 0.8% in Q3 2021. Amid rising prices, the Reserve Bank decided to finish its 350 billion AUD bond-buying program ahead of schedule. However, the regulator did not announce a rate hike – it noted rising inflation was only transitory.
The RBA took a similar position in March as well. Although the central bank admitted there was a risk of galloping inflation due to recent events, it also said it was unsure how steadily inflation would rise amid the global energy crunch.
In other words, the Reserve Bank has doubts that factors pushing inflation up would persist. The Australian central bank is not ready to tighten its policy in the near future due to another issue – wage growth. Despite accelerating inflation, wage growth continues to lag behind, and the regulator is ready to be patient, the meeting minutes noted.
There are no domestic factors that could help AUD rally and end the ongoing downtrend of AUD/USD. However, the Aussie got some support from Chinese data releases. Industrial production rose in February by 7.5%, well above a forecasted increase by 4.0%. Australia remains a major trade partner of China and is a major supplier of iron ore to the country - the data indirectly boosted the pair.
The pair's upward correction was caused by falling demand for the US dollar. Risk-off sentiments are easing amid optimism over peace talks between Ukraine and Russia. However, geopolitical factors cannot serve as reliable support – there has been no intermediate or final decisions and statements yet by the two sides. Traders should be cautious about the current retreat of USD. Furthermore, tomorrow's policy decision by the Fed could give support to USD – the regulator is expected to hike the rate by 25 basis points.
On the technical side, AUD/USD is likely to continue sliding down in the medium term. The pair is between the middle and lower lines of the Bollinger Bands indicator on the H4 timeframe, as well as below the Ichimoku cloud, demonstrating the "parade of lines" bearish signal. This suggests the pair is more likely to move downwards. The current target for the downtrend is 0.7150 – the lower line of Bollinger Bands on the same timeframe. If AUD/USD bears manage to settle below this target, it would open the way to 0.7100.
