Hawkish Details Emerge
The Australian Dollar is trading higher today following the release of the April RBA meeting overnight. The minutes confirmed a hawkish shift in the bank’s outlook with the bank noting that the recent lift in inflation and wage growth “have brought forward the likely timing of the first increase in interest rates”. This statement is particularly important given that, despite inflation rising across the back end of last year, the RBA argued against the need to hike rates given that wage growth remained subdued. With wage growth now rising firmly, this barrier to hiking has been removed. Looking ahead, the RBA noted it will be assessing incoming data on inflation and labour costs in the “coming months” with regard to its monetary policy.
Increased Price Pressures
Looking at inflation in particular, the RBA minutes noted that “the Bank’s liaison program indicated that many firms had either increased selling prices over recent months or anticipated increasing prices in the months ahead. However, there was uncertainty about whether these price adjustments had represented a one-off shift in the level of prices or the start of a period of ongoing price increases.”
Stronger Wage Growth
On wage growth, the minutes noted that ““the Bank’s liaison program suggested that private sector wages growth had continued to pick up in the March quarter. This shift had been mostly evident in individual pay arrangements; wage increases provided in enterprise bargaining agreements had reportedly remained around the subdued rates seen in late 2021. Broader measures of labour costs had been expected to increase at a faster pace than base wages in the period ahead.”
Rate Hike Expected in June
On the back of the meeting minutes, market pricing for an RBA rate hike has increased again though a hike is only fully priced in by June. With this in mind, the market is expecting the RBA to announce a run-off of its bond holdings at the May meeting, followed by a full hike in June. However, incoming data over the coming weeks might still lead to an earlier hike in May. In particular, the market will be watching the CPI release on 27 April.
Technical Views
AUDUSD
The pull back from the .7656 highs has seen the market trading down to test the rising channel low which, for now, is holding as support. With both MACD and RSI turning higher off recent lows, the focus remains on further upside while the channel low holds, putting focus on .7483 and .7564 next. To the downside, a break of the channel low and the .7312 level will put the .7188 level (and retest of broken bear trend line) in focus.
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