The Reserve Bank of Australia will summarize the results of its next meeting on August 2. Ahead of this event, the AUD/USD pair is trying to settle above the resistance level of 0.7000. According to general forecasts, the RBA will raise the interest rate by 50 basis points on Tuesday. If this scenario is implemented, it will be the third 50-point increase in the rate. Therefore, the main intrigue of the August meeting lies in the rhetoric of the accompanying statement in the context of the future prospects of the RBA monetary policy. Will the central bank maintain a hawkish attitude or hint at a reduction in the pace of tightening of the monetary policy? This is an open question, given the ambiguous inflation release that was published just last week.
Let me remind you that key inflation indicators are published in Australia quarterly (and not monthly), so the CPI growth report released last week will play a crucial role in assessing the ongoing processes. I repeat – the release turned out to be ambiguous. The overall consumer price index in the second quarter rose to 6.1% (year-on-year). On the one hand, experts expected to see a stronger result (6.2%). On the other hand, this is the strongest growth rate since 2001. Price increases were recorded in almost all categories. For example, real estate prices in the primary market increased by 9%, transport services (logistics) increased in price by 13%, essential goods – by almost 8%. On the other hand, in quarterly terms, the index unexpectedly slowed to 1.8% (with a decline forecast to 1.9%). Over the previous three quarters, this indicator showed a consistent upward trend, reaching 2.1% in the first quarter. This circumstance allowed us to assume that inflation has reached its peak.The question now is how the central bank (in general) and RBA Governor Philip Lowe, in particular, will assess the current situation. At least for today, there is no certainty that the central bank will maintain the same hawkish attitude that it demonstrated at the previous three meetings.
Market expectations regarding the results of the August meeting are very unambiguous. According to 32 out of 34 economists surveyed by Reuters, the RBA will raise the rate to 1.85%. Similar forecasts were published by representatives of the "big four" Australian banks (Westpac, NAB, ANZ and CBA). But there is no consensus on the future prospects: according to some experts, the central bank will announce a rather alarming forecast, according to which the total CPI at the end of this year will be 7.5% (in annual terms). Such prospects will indicate that the central bank will decide on another 50-point hike in the fall. In addition, arguing their position, the hawks point to the growing employment in Australia, which indicates the revival of the economy and, accordingly, the desire to spend the accumulated funds that were saved earlier. "Against this background, we should not expect a weakening of price pressure – it will certainly not only remain high, but also exceed the forecasts of most analysts," said one of the experts. If the RBA holds the same opinion, it will remain hawkish.
According to other currency strategists, at the August meeting, the RBA will resort to a 50-point rate hike for the last time this year. They assume that the central bank will then reduce the pace of monetary policy tightening. According to their forecasts, the next time the central bank will raise the rate at the November meeting – by 25 points, ending the year with an OCR of 2.10%. Next year, according to this scenario, the central bank will raise the rate twice: in February (by 25 points) and in May (by 15 points). Then the RBA will take a break, keeping the rate at 2.5% until the end of 2023.
Thus, the market is almost 100% sure that the Australian central bank will raise the rate by 50 basis points on Tuesday. Any deviation from this scenario will have a strong impact on the AUD/USD pair. If the central bank limits itself to a 40-point or 30-point hike, the aussie will collapse at least one figure down. If the RBA surprises with an "ultra-hawkish" attitude by raising the rate by 60 or 75 points at once, the aussie will significantly strengthen its position throughout the market. Paired with the US currency, the aussie can come close to the borders of the 72nd figure.
In my opinion, following the results of the August meeting, the RBA implements the basic and most expected scenario – it will raise the rate by 50 points. At the same time, the rhetoric of the accompanying statement will be somewhat softened compared to previous statements. In this case, the AUD/USD pair will react reflexively with growth, but will not be able to settle above the resistance level of 0.7100 (the average line of the Bollinger Bands indicator on the daily chart). Therefore, the upward spikes can be considered as a reason to open short positions – given the growing geopolitical risks, downward price pullbacks are almost inevitable. The downward targets are 0.7000 and 0.6950 (the Tenkan-sen line on the same timeframe).