Australian Dollar Down as the RBA Rules Out Rate Hikes Until 2024
1 June 2021
The Australian Dollar turned lower as the Reserve Bank of Australia (RBA) struck an unmistakably dovish tone with June’s monetary policy announcement. Governor Philip Lowe and company said the conditions for an interest rate rise are unlikely to be met until 2024 at the earliest.
In the statement accompanying the rate decision, the central bank said that it places a high priority on a return to full employment. It acknowledged that economic recovery has been stronger than expected but warned that the prospect of new Covid-19 outbreaks is an ongoing uncertainty.
The official cash rate and the 3-year yield targets were left unchanged at 0.10% respectively, as widely expected. Policymakers flagged the July meeting as a time when the yield objective as well as further QE asset purchases will be considered.
Looking ahead, the spotlight turns to tomorrow’s first-quarter GDP report. It is expected to show that output grew 1.5 percent, slowing from the 3.1 percent rise recorded in the final three months of 2020. Leading PMI survey data supports the case for a slowdown, though it also flags a pickup in April and May.
Turning to technical positioning, AUD/USD appears to be carving out a Head and Shoulders (H&S) topping pattern. Breaking immediate support in the 0.7664-91 area exposes the setup’s defining neckline support at 0.7564. A daily close below that completes the formation, implying a drop below 0.72 to follow.
Alternatively, a push above resistance in the 0.7820-49 zone threatens to undo the H&S setup. Another test of the 2021 swing top just north of the 0.80 figure seems likely in this scenario.