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AUD to USD Forecast: RBA Meeting Minutes Reveal Rate Hike Discussions

By:
Bob Mason
Published: Dec 19, 2023, 00:56 GMT+00:00

The RBA Meeting Minutes poured cold water on rate cut discussions and highlighted the ongoing battle central banks face to tame inflation.

AUD to USD Forecast

In this article:

Highlights

  • The AUD/USD gained 0.10% on Monday, ending the session at $0.67061.
  • On Tuesday, the RBA Meeting Minutes garnered investor interest early in the session.
  • US housing sector data and Fed commentary also need consideration later in the session.

Monday Overview of the AUD/USD

The AUD/USD gained 0.10% on Monday. Following a 0.06% rise on Friday, the Aussie dollar ended the Monday session at $0.67061. The Australian dollar fell to a low of $0.66903 before striking a high of $0.67352.

RBA Meeting Minutes Dictate 2024 Rate Cut Bets

On Tuesday, the RBA Meeting Minutes drew investor interest. After the dovish Rate Statement, the Meeting Minutes left a rate hike on the table.

Salient points from the RBA Meeting Minutes included,

  • Tight rental markets could continue to drive inflationary pressure over the near term.
  • Firms expect weaker demand and increased competition among retailers to dampen inflationary pressures. However, some firms reported persistent cost pressures.
  • Members observed some inflation expectation metrics were moving higher.
  • Wage growth remained a concern, with an increased risk of a pickup in wage growth.
  • Forward indicators suggest a further softening in labor market conditions.
  • A recovery in house prices would support household wealth and consumer spending.
  • Australian households’ required interest payments as a share of disposable income were higher than in recent years but below levels seen in 2008.
  • Members considered raising rates in the December 5 meeting to tackle elevated inflation and a positive outlook for domestic demand.
  • The Board agreed to wait for more data and to prevent inflation expectations from diverging from the inflation target.
  • Further monetary policy tightening will hinge on incoming data. Focal points will include the global economy, domestic demand, and the outlook for the labor market and inflation.

The Board highlighted progress toward bringing inflation to target. However, the RBA considered hiking rates by 25 basis points on December 5. The consideration leaves the door open to further rate hikes should incoming data support the need for further tightening.

Significantly, the Aussie dollar responded to the hawkish minutes. The AUD/USD climbed from $0.67049 to $0.67165 in response to the minutes.

AUD/USD responds to the RBA Meeting Minutes
AUDUSD 191223 3 Minute Chart

The Fed and the US Housing Market in Focus

On Tuesday, US building permit and housing start numbers for November will garner investor interest. Weaker-than-expected housing sector figures could raise an early red flag about the US economy.

Economists consider housing sector data as leading indicators for the US economy. A weaker homebuyer demand environment could impact consumer spending and the economy. Homebuyers acquire new items when purchasing a home, fueling consumer spending. The US housing sector and private consumption contribute over 15% and 60% to the economy.

Economists forecast building permits and housing starts to decline by 1.2% and 0.8%, respectively. However, investors must consider trends to determine current housing market conditions.

The US NAHB Housing Market Index increased from 34 to 37 in December, supported by falling mortgage rates. The report signaled an improving housing sector environment as the Fed prepares to cut interest rates in 2024.

However, investors must also monitor Fed commentary. Hawkish Fed comments could impact bets on a Q1 2024 Fed rate cut and the buyer appetite for the AUD/USD.

Short-Term Forecast

Near-term trends for the AUD/USD could hinge on the RBA Meeting Minutes and the US economic calendar. A dovish RBA and upbeat US economic indicators could tilt monetary policy divergence toward the US dollar. US personal outlays and inflation could be pivotal on Friday.

AUD/USD Price Action

Daily Chart

The AUD/USD remained above the 50-day and 200-day EMAs, affirming bullish price signals.

An AUD/USD break above the $0.67286 resistance level would support a move to the $0.68096 resistance level.

Reaction to the RBA Meeting Minutes and the US economic calendar will influence the AUD/USD on Tuesday.

However, a drop below the $0.66500 handle would bring the $0.66162 support level into play.

A 14-period Daily RSI reading of 65.03 indicates an AUD/USD return to the $0.67500 handle before entering overbought territory (typically above 70 on the RSI scale).

AUD to USD Daily Chart sends bullish price signals.
AUDUSD 191223 Daily Chart

4-Hourly Chart

The AUD/USD held above the 50-day and 200-day EMAs, reaffirming bullish price signals.

An AUD/USD break above the $0.67286 resistance level would give the bulls a run at the $0.68096 resistance level.

However, a fall through the 50-day EMA would bring the $0.66162 support level into play.

The 14-period 4-Hourly RSI at 57.45 suggests an AUD/USD move to the $0.67500 handle before entering overbought territory.

4-Hourly Chart affirms bullish price signals.
AUDUSD 191223 4-Hourly Chart

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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