Aussie calm after RBA minutes

The Australian dollar is drifting in the Tuesday session.  AUD/USD is currently trading at 0.7341, down 0.07% on the day.

RBA minutes preach patience

There were no surprises from the RBA minutes, as policymakers indicated that the current pace of QE was appropriate and the cash rate would remain at 0.10% until 2024 or until wages and inflation targets are met. In a speech given after the release of the minutes, Governor Lowe reiterated this point, saying that wages would have to rise to above 3% in order to sustain inflation in the middle of the bank’s target band of 2-3%. Lowe added that wage growth was only one indicator that would determine rate policy.

Perhaps Lowe’s most telling comment was that “the latest data and forecasts do not warrant an increase in the cash rate in 2022”. The Governor is clearly trying to push back against market expectations, which are much more hawkish than those of the central bank. The markets have priced in at least three rate hikes in 2022. It seems that the disconnect between RBA guidance and market expectations will continue for some time. If additional data points to inflation continuing to gallop at high levels, Lowe may find that the markets have tuned out from his message that inflation is transitory.

In the US, inflation has hit its highest level in 30 years, a situation which the Fed is finding increasingly difficult to ignore. The Fed announced earlier this month that it would taper its bond program, but the voices calling for a faster reduction are getting louder. Former New York Fed President Bill Dudley, former US Treasury Secretary Lawrence Summers and other officials are urging the Fed to speed up tapering. The cautious Fed will have to address this issue at its December meeting, but will see the October PCE index, its preferred inflation gauge, as well as the November CPI report ahead of the meeting. The argument against accelerating tapering is that it could trigger a taper tantrum, which occurred back in 2013 and caused a spike in US Treasury yields.

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AUD/USD Technical

• There are resistance lines at 0.7416, and 0.7502
• We find support at 0.7261 and 0.7192

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