The brief drop just below 0.6700 right after the RBA policy decision saw AUD/USD trade to its lowest in two months. For now though, there is some short-term support being held near the figure mark. As for the downside push, it comes as traders take to the statement as one that is less hawkish. Let's take a look at why.
Firstly, let's take a look at the final two paragraphs - which is often the most important ones as it details forward guidance. This is the change from February to March (underlined are additions, strikethroughs are removals):
"The Board’s priority is to return inflation to target. High inflation makes life difficult for people and damages the functioning of the economy. And if high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment. The Board is seeking to return inflation to the 2–3 per cent target range while keeping the economy on an even keel, but the path to achieving a soft landing remains a narrow one.
The Board expects that further tightening of monetary policy will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary. In assessing when and how much further interest rates need to increase, the Board will be paying close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that."
As you can see, there's not a lot of changes whatsoever from the policy guidance last month to this month. They're keeping the door open to more rate hikes in the months ahead but the fact that they're putting out the question of when that may be is enough for markets to take this as being a softer resolve by the RBA.
The removal of the wording "over the months ahead" in terms further tightening is another nod to that.
In trying to balance that out, the RBA is saying that "the monthly CPI indicator suggests that inflation has peaked in Australia". That is certainly a bold statement after having come out in November to say that the quarterly inflation report remains their main indicator in gauging inflation pressures in the economy.
I mean, after having been heavily scrutinised by the whole "interest rates will not be raised until 2024" fiasco during the pandemic, you would think that they might handle things more delicately - especially on the inflation outlook.
In any case, it seems like they are toning down their aggressiveness while trying to keep the door open for more rate hike(s) to follow. That seems to be the approach these days unless of course you are the ECB.
Going back to the aussie, AUD/USD will still try to lean on support closer to 0.6700 but if that gives way, that will free up the path towards the December lows around the 0.6630-65 region next.
