The Australian dollar continues to rally and has extended its gains for a fifth successive day. In the European session, AUD/USD is trading at 0.6550, up 0.19%.
Minutes: RBA considered raising rates
The minutes of the RBA’s February meeting were released earlier today. At the meeting, there RBA maintained the cash rate at 4.35%, as expected. The minutes indicated that some members supporting raising interest rates by a quarter-point. This was due to a concern about sticky inflation.
The RBA has raised rates only once since June, which has led to the markets pricing in rate cuts later this year. The RBA has pushed back against these expectations as inflation is running at 4.1%, well above the 1-3% target band. The central bank expects the inflation battle to be a long one, projecting that inflation will only fall back to 3% in mid-2025 and 2% by 2026.
At the February meeting, the RBA warned that it was prepared to raise rates. The minutes noted that the central bank expects the economy to continue to cool and it is prepared to lower rates if economic activity falls more than expected.
The minutes indicated that there is significant uncertainty over the economic outlook and the direction of inflation. Given this backdrop, the RBA has been forced to send mixed messages to the markets, stating that rate cuts and rate hikes both remain on the table. What will likely determine which direction the RBA eventually takes will be dependent on key data, such as the wage price index which will be released on Wednesday.
China cuts 5-year LPR
In a surprise move, the People’s Bank of China cut the five-year loan prime rate by a quarter point to 3.95%, the largest rate cut since 2019. Lower rates should translate into a reduction in mortgage rates for homeowners and support the troubled property sector. Still, the move is not considered a game-changer for the Chinese economy and the Australian dollar isn’t showing much of a response.
AUD/USD Technical
- AUD/USD put pressure on support at 0.6506 earlier. Next, there is support at 0.6468
- 0.6570 and 0.6608 are the next resistance lines
