The AUD/USD pair is trading in the 0.6700 - 0.6780 range, moving back and forth between the limits. The aussie is waiting for the Reserve Bank of Australia's March meeting on Tuesday, March 7.
Expert estimates
The baseline scenario for the upcoming meeting assumes another 25 bps interest rate hike. This scenario has already been priced in, so the market will focus on further prospects of monetary tightening. Recent macro data that were released in Australia allows the central bank to tone down its rhetoric. If that is the case, the pair will be under significant pressure. On the other hand, the RBA demonstrated a tough stance at its February meeting, as indicated by the minutes of the meeting. Therefore, there is still some intrigue regarding the outcome of the March meeting.
According to a Reuters poll, 27 of 28 economists believe the RBA will push for a 25 bps rate hike in March. One of the polled experts is betting on a 15-point hike. Actually, there is no intrigue here - the 25 bps hike was widely announced by the RBA representatives during the previous weeks.
As for further perspectives, analysts' opinions were divided. Nearly half of the economists interviewed expressed confidence that the RBA will hike rates by 25 bps in the second quarter. The rest of the economists are betting on another round of 25 bps hike in May (in which case the final point would be set at 4.10%).
It is worth noting that hawkish sentiment dominated the market a few weeks ago. But the latest macro data made traders doubt that the central bank will show zealous determination.
Data are not in favor of the aussie
The monthly Consumer Price Index (CPI) indicator rose 7.4% in the year to January 2023, while the forecast was for a decline to 8.1%. The slowdown in inflationary growth was due to a weak rise in fuel prices, as well as food prices.
Another important data also turned out to be in the red zone. The Australian economy grew by only 0.5% in Q4 2022 compared to the previous three months. This result was lower than forecasted (most experts expected to see 0.8% growth).
Shortly before that key labor market data had also been published which also disappointed market participants. The unemployment rate in Australia rose to 3.7%, while net employment fell 11,500 (forecast was growth by 20,000).
In other words, the main macro data that has been published since the February meeting have left more questions than answers. Therefore, the tone of the RBA's rhetoric (first of all, it concerns the text of the accompanying statement) may be softened - in the context of further prospects of monetary tightening. It is likely that the central bank will tie its next steps to the inflation rate and other macroeconomic indicators, but will not formally abandon its hawkish stance.
RBA Governor Philip Lowe recently said that his priority was to get inflation back to the target level, so further interest rate hikes would be required in the "near future." However, these words were said even before the release of the January CPI report. On the one hand, inflation in Australia is still unacceptably high, but on the other hand, the rate of CPI decline has accelerated substantially. Whether this fact will play a decisive role in the context of softening Lowe's rhetoric is an open question.
Conclusions
Given the high degree of uncertainty, traders of the pair are in no hurry to open big positions. The 0.6700-0.6780 price range is a comfortable territory for both bulls and bears.
For instance, on Friday, the pair showed an uptrend in the morning amid intensified risk sentiment in the markets. But during the U.S. session, the aussie gave up, following the release of the ISM Services PMI. The index was in the green zone, at 55.1, i.e. almost at the January level (55.2). Whereas most of the experts forecasted a decline down to 54.5 points. This fact made it possible for bears to launch a counterattack, but the pair still stayed within the aforementioned price range.
We can assume that the aussie will stay in this range until the announcement of the results of the RBA meeting in March.
