Today, Easter Monday is celebrated in Catholic countries. Exchanges and banks in them are closed. This will affect trading volumes, but it will not cancel out the likelihood of a sharp increase in volatility due to speculative actions of traders, especially if unexpected news appears.
Significant movements may begin on the market tomorrow, and already at the beginning of the Asian trading session, when (at 01:30 GMT) the minutes from the April meeting of the RB of Australia will be published. During a recent (April) meeting, the RBA kept its key interest rate at 0.10%, but radically revised its forecasts, acknowledging that the economy is performing much better than the bank expected. In an accompanying statement, the RBA omitted the words "ready to remain patient" and announced that it would closely monitor incoming data on wage growth and inflation and, based on them, determine the parameters of monetary policy.
"In the coming months, the Board will have access to important additional data on inflation and labor costs", RBA Governor Philip Lowe said. "The Board will evaluate this and other input to determine policies that should support full employment in Australia and inflation in line with the target", Lowe added.
Coming out next week (Wednesday at 01:30 GMT) 1st quarter inflation data (published by the RBA and re-published by the Australian Bureau of Statistics) will be critical to determining the dynamics of RBA policy. Australian annual consumer inflation is expected to slow to 2% (from 3.5% in Q4 2021).
A slowdown in inflation and its reduction in the target range of 2%-3% is likely to force the central bank to continue to take a wait-and-see attitude. Back in February, the bank announced the end of its quantitative easing program, signaling that the cessation of purchases of government bonds does not mean that interest rates will be immediately raised.
According to the head of the RBA, Philip Low, there are still "no serious arguments in favor of tightening monetary policy in the short term". In his opinion, "before the increase in interest rates will take some time".
The RBA remains one of the few global central banks that has not yet embarked on a cycle of tightening its monetary policy. Nevertheless, market participants and economists still take into account the possibility of an increase in the RBA's key rate in June and a cycle of rapid tightening of monetary policy next year. However, market participants and economists still consider the possibility of an increase in the RBA key rate in June and a cycle of rapid monetary tightening next year.
If the published protocol contains unexpected information regarding the monetary policy of the RBA, then the volatility in AUD quotes will increase.
If the RBA raises rates in the coming months, it would be the first time since 2010 and would put it on par with other key central banks, many of which are already aggressively tightening policies to contain the highest inflation since the 1980s.
Financial markets have long been pricing in the likelihood of an RBA key rate hike in June and a cycle of rapid monetary tightening next year. At the same time, the RBA does not intend to raise interest rates until inflation stabilizes within the target range of 2%-3%.
Although the Aussie has been declining against the USD this month, it has been steadily trading higher in cross pairs, especially against euro-currencies, receiving support amid increasing risks associated with the imposition of new sanctions against the Russian economy. In particular, new bans are expected on the import of Russian energy resources, which may lead to a new round of inflationary pressure and rising prices for commodities, the largest exporter of which is Australia. Recall that one of the main export commodities of Australia are liquefied gas, coal, iron ore, agricultural products. The country is also the largest supplier of gold to the world market, whose quotes continue to grow.
As for the AUD/USD pair, as we noted above, it is declining after it reached the local resistance level 0.7660 (the highest since June 2021) at the beginning of the month after the RBA meeting, attempting to break through the key long-term resistance level 0.7615. However, the pair subsequently declined against the backdrop of USD strengthening and reached the important support level 0.7365 by now. In our opinion, at this level and with a decrease to the support level 0.7330, one can enter long positions (for an alternative scenario and for more details, see "AUD/USD: technical analysis and trading recommendations for 04/18/2022").