Market Analysis

RBA may signal new dovish policy stance this week

The Reserve Bank of Australia meets to decide on interest rates on Tuesday, with financial market participants braced for a policy shift from Australian policymakers. While the RBA is expected to keep rates on hold at 1.5 percent, the central bank is likely to follow the Reserve Bank of New Zealand and signal that the next rate move will likely be lower.

Following last months dovish policy meeting, where the RBA downgraded growth expectations, the RBA may signal a new dovish policy stance as domestic data points have worsened. RBA members noted during the meeting minutes of the February policy meeting that they were closely watching the Australian jobs market; as employment remained a key element when deciding on monetary policy.

Last months job report from the Australian economy came in much weaker than expected, with 4,600 new jobs created during the month of February, which was significantly lower than that 39,100 created during January. Furthermore, full-time positions actually contracted by 7,300 during February, which marked an alarming fall from 65,400 full-time positions seen in January.

The Australian housing market continued to decline in March, with the Australian construction PMI contracting for the sixth consecutive month, which was generally in line with the ongoing decline of the housing sector and house prices. The RBA has previously noted that the main domestic uncertainties surrounding the Australian economy continues to be the household consumption in the context of weak growth in household income and falling housing prices in some cities.

With persistently weak inflationary pressure and uncertainty surrounding the Chinese economy, the Reserve Bank of Australia is coming under pressure to offer assistance to the struggling economy. Just like the Reserve Bank of New Zealand, who become the latest central bank to change its policy tone, as they signaled that rates would likely head lower this year.

It is more than likely a new dovish stance towards interest rates will pressure the Australian Dollar, as investors price in a potential 25 basis point rate cut from the RBA as soon as August. The Reserve Bank of Australia has kept interest rates unchanged since August 2016, which marks nearly three years of neutral policy from the Australian central bank.


AUD/USD Daily Mountain Chart | Source: ActivTrader

AUD/USD Daily Mountain Chart | Source: ActivTrader 


The AUD/USD pair is likely to come under technical selling pressure if the 0.7000 level is broken with conviction this week. The 0.6940 and 0.6850 levels offer the strongest forms of support below the 0.7000 level. To the upside, a bearish triple-top pattern formation is currently weighing on the AUD/USD pair across the daily time frame. Key weekly resistance is found at the 0.7245 and 0.7380 levels.


Written by Nathan Batchelor, External Analyst

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