The 0.7000 mark is sacred for the AUD/USD pair. It is difficult to overcome both from the top down and from the bottom up. Looking at the weekly chart of this pair, we will see that the confrontation between bulls and bears around this target has been going on with varying success since the end of April. That is, for two months, the aussie has been trading in a wide price range of 0.6850-0.7200, alternately starting from the boundaries of this range. Bears are trying to settle under the 0.7000 mark, and the bulls of the pair, respectively, are above it. To date, the bears have a certain advantage, but they also cannot develop a downward trend. The aussie is still tossing from side to side.
An interesting document will be published during the Asian session on Tuesday, which may provoke increased volatility for the AUD/USD pair. We are talking about the minutes of the last meeting of the Reserve Bank of Australia, which took place two weeks ago. Let me remind you that following the results of this meeting, the central bank implemented the least expected scenario by raising the interest rate by 50 basis points at once (whereas the base scenario assumed a 25-point increase in OCR). Moreover, the RBA actually announced further steps to tighten monetary policy. The accompanying statement states that the size and timing of the future increase "will be determined by incoming data and an assessment of the prospects for inflation and the labor market."
In other words, the central bank, on the one hand, announced its intention to further tighten monetary policy, but, on the other hand, it did not talk about the expected pace of this tightening. The minutes of the June meeting can answer this question for us.
Let me remind you that the minutes of the previous (May) meeting supported the Australian currency. It turned out that the members of the central bank had three main scenarios on the table. The first is a rate increase of 15 basis points, the second – by 25 points and the third – by 40. According to the document, the members of the RBA came to the conclusion that the 15-point step does not correspond to the current situation. As you know, then the RBA chose the second option, although the market expected a rate increase of only 15 points.
As for the option of increasing the rate by 40 basis points at once, it was postponed as a last resort, that is, if inflation continues to increase at an accelerated pace. The minutes of the May meeting indicate that "the argument in favor of tightening by 40 points may be the presence of upward risks for inflation and the current very low level of interest rates." That is, by and large, this is a backup plan, the implementation of which will depend on the dynamics of inflation in the second quarter.
This circumstance may play a role in the context of the strengthening (or weakening) of the Australian currency. If the minutes of the June meeting show that the RBA members allowed the option of an increase of 40 or 50 points, the aussie will strengthen its position throughout the market. This option is not unlikely, given the fact that for the second time in a row, the central bank raises the rate by a more impressive amount relative to previous expert forecasts. At the May meeting, the RBA raised the rate by 25 points, while the market was focused on a 15-point increase. Ahead of the June meeting, the market was ready for a 25-point increase, while the de facto central bank increased the rate by 50 points.
Thus, the AUD/USD pair is between two fires: on the one hand, an increase in the interest rate and a tightening of rhetoric on the part of the RBA, on the other hand, the same processes on the part of the Federal Reserve. In this confrontation, the bears have a kind of margin of safety: de facto Fed Chairman Jerome Powell made it clear that at the July meeting, the US central bank will raise the interest rate by 50 or 75 points. Given the indirect inflationary signs, it can be assumed that the Fed will lean towards the second scenario. But the aussie's position is more precarious: if the minutes of the RBA's June meeting are restrained, the aussie will weaken. Also, do not forget that the very fact of the rate increase in July is already embedded in the current prices. Therefore, Tuesday's release may not meet the hawkish expectations of traders.
The technical side of the issue also speaks in favor of the downward scenario. So, on the daily chart, the price is located between the middle and lower lines of the Bollinger Bands indicator, as well as under all the lines of the Ichimoku indicator, which shows a bearish Parade of Lines signal. All these signals of a technical nature also indicate the priority of the downward movement. The first and so far the main target of the downward trend is located on the lower line of the Bollinger Bands indicator – at 0.6880.
