- ASX 30-day interbank cash rate futures implied a further pause in the RBA cash rate through 2023.
- A contraction in China NBS Manufacturing PMI for Apr may reinforce RBA’s cautious stance.
- AUD/USD remains below the downward-sloping 50-day moving average.
The Reserve Bank of Australia (RBA) will decide later today on its latest monetary policy decision where the market participants are expecting a second consecutive pause on the key policy cash interest rate at 3.60% after it hiked ten times from a historical low of 0.1% in April of last year to 3.60% in March 2023.
Further pause in RBA cash rate is expected throughout 2023 with the first cut coming in March 2024
Fig 1: ASX 30-day interbank cash rate futures implied yield curve (Source: ASX RBA Rate Tracker , click to enlarge chart)
Based on the implied yield curve of the ASX 30-day interbank cash rate futures, the market has priced in a further pause on RBA’s interest rate hike cycle for the entire of 2023 as the implied yield is being held steady at around 3.60% throughout the remaining monetary policy meetings.
In addition, a new interest rate cut cycle is expected to kickstart in 2024, the first cut of around 10 basis points implied by the ASX 30-day interbank cash rate futures to come in on March’s RBA meeting.
The recent guidance from RBA officials has indicated that the recent change of its initial hawkish monetary policy stance was adopting a cautious approach in persevering Australian jobs to account for the knock-on effects from policy lags amid an ongoing global slowdown in economic growth rather than negating any potential localized financial tightening conditions from the ripple effects triggered by the recent regional US banking turmoil.
The justification for a further pause today can be seen from a softening Q1 2023 inflation data released last week; annualized growth for the headline CPI dropped to 7% year-on-year from a 30-year high of 7.8% printed in Q4 2022. Also, the RBA trimmed mean CPI added 6.6% year-on-year in Q1, below the consensus of 6.7%, eased from a record high of 6.9% increase in Q4.
Slowdown in China’s manufacturing growth may further reinforce RBA’s cautious stance
From an external growth standpoint, Australia’s top exporter, China has started to show signs of a growth slowdown after an uptick in the first three months of 2023. The NBS Manufacturing PMI for April indicated that China’s manufacturing sector contracted to 49.2 from 51.9 in March, below the consensus of 51.4.
Key sub-components data of the China NBS Manufacturing PMI are pointing to weaker implied growth for the global economy in the coming months, such as New Orders and Import components have decelerated to 48.80 to 48.90 respectively. Hence, it is likely to add impetus for RBA to continue to adopt a cautious stance on its monetary policy today.
AUD/USD Technical Analysis – Retreated from former “Expanding Wedge” range support & below 50-day moving average
Fig 2: AUD/USD trend as of 2 May 2023 (Source: TradingView, click to enlarge chart)
The minor rally seen on the AUD/USD from last Friday, 28 April low of 0.6574 has managed to stall and retreated from its former “Expanding Wedge” range support now acting as a resistance at around 0.6680 which also coincided with the downward sloping 50-day moving average.
Current key elements suggest that AUD/USD may have started to evolve into a short-term downtrend in place since the 14 April 2023 swing high area of 0.6800. If the 0.6680 key short-term pivotal resistance is not surpassed to the upside, it may retest 0.6580 and a break below it exposes the next support at 0.6525.
On the other hand, a clearance above 0.6680 jeopardizes the bullish tone to see the next key medium-term resistance coming in at 0.6800.
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Kelvin Wong