Forex Analysis & Reviews: 01.09.2022 - AUD/USD: RBA is too late to...

01.09.2022 02:40 PM

AUD/USD: RBA is too late to tighten monetary policy

Unable to withstand the resistance from the US dollar, the Australian dollar followed the example of other major currencies, and the pair AUD/USD again turned lower this week. Like other major currency pairs, it also began the new month with a decrease (in relation to the US dollar).

The weakening of the AUD, in particular, is facilitated by weak macro statistics that have recently come from Australia and China, Australia's main trade and economic partner.

Manufacturing PMI from AiG published yesterday fell to 49.3 in August from the previous value of 52.5, while S&P Global showed a decline to 53.8 from 54.5 in July. Residential investment borrowing also declined by -11.2% after falling -6.3% in June, while private capital expenditure fell by -0.3% in Q2 after rising +0.4 % in Q1.

Previously published data showed that the figure for completed construction works in Q2 fell sharply by -3.8% after falling by -0.9% in Q1, instead of an expected growth of +0.9%. This suggests that the national construction market is under pressure due to a significant increase in costs and tightening of the monetary policy of the RBA. And it (the Reserve Bank of Australia) has nowhere to go, given the accelerating inflation in Australia and the world.

According to some well-known economists, the RBA was late in tightening monetary policy, "the RBA's previous forecast that a rate hike would not be required until 2024 was erroneous," and "now the rate hike should be much more significant than if they had started acting earlier."

Recall that the next RBA meeting on this issue is set for early next week (Tuesday). The current RBA interest rate is 1.85%. At a monetary policy meeting on August 2, RBA board members decided to raise the official cash rate (OCR) by 50 basis points, and, according to the minutes from the August meeting, the bank's management is set to "further steps in the process of normalizing monetary conditions in the coming months, but is not on a predetermined path."

Immediately after the publication of this protocol, some market participants began to price the likelihood that the RBA would cut the rate by 25 bps in September or until it puts this process on pause, and does not raise the interest rate. They are probably wrong. However, if the RBA once again raises the interest rate at a meeting on September 6, then the market reaction to this decision may turn out to be completely opposite to what happens in similar cases in a normal economic situation (when the central bank's interest rate increases, the national currency usually strengthens).

As for the AUD/USD pair, it is likely to continue to decline, given the Fed's tough intentions to curb inflation in the US, which has reached 40-year highs.

As of writing, it is trading near 0.6827, remaining in the bearish market area below the key resistance levels at 0.7100, 0.7260 and maintaining a tendency to decline further.

In the current dynamics of AUD/USD, it is necessary to focus on the dynamics of the US dollar, especially on the eve of the publication on Friday (at 12:30 GMT) of data on the US labor market for August. The positive momentum of recovery is expected to continue, which allows Fed leaders to continue to fight inflation at an accelerated pace, and this is a bullish factor for the USD. It is strengthening again today, while the dollar index (DXY) is growing. As of writing, DXY futures are trading in close proximity to the local resistance level of 109.00. After its confirmed breakdown, the next target is 110.00.

As for the news for today, we are waiting for the publication at 12:30 and 14:00 (GMT) of a block of important macro statistics for the United States, which can give a new impetus to the dollar.

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Fundamental analysis

Jurij Tolin,
Pakar analisis InstaForex
© 2007-2025

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