Optimistic Tone From RBA
The Aussie Dollar has seen better demand across the early European session on Tuesday following the release of the RBA meeting minutes. The minutes from the bank’s December meeting saw the central bank striking a broadly optimistic tone as it highlighted plans to press ahead with tapering in 2022, due to end in May. Additionally, the minutes showed that the bank discussed more aggressive options also, including ending asset purchases as early as February if economic data performed better than current forecasts. A further option under discussion was to taper in February and reassess in May if economic activity was slower than forecast.
Labour Market Improving
With many central banks within the G10 shifting their sights towards tightening, the RBA is among one of the more hawkish. The central bank opted to keep monetary policy on hold in December allowing until the December meeting to give time for the omicron variant to be properly assessed. However, the tone of the meeting was firmly encouraging with the minutes noting that “Timely indicators suggested that economic activity, particularly household consumption, was recovering strongly. Leading indicators of labor demand pointed to a strong recovery in labor market conditions in coming months.” Indeed, the bank’s last meeting came ahead of the latest Aussie employment data which showed hitting rising to record number last month, sending the unemployment rate lower still.
In terms of the options discussed at the meeting, the RBA noted
“These options reflected the expectation that the economy would continue to bounce back”. Looking ahead, the RBA noted that “The emergence of the omicron variant was a new source of uncertainty, but it was not expected to derail the recovery.”
Inflation Still An Issue
The key sticking point for the RBA continues to be inflation and, within that, wage-growth specifically. The bank noted that inflation is likely to remain subdued in the near term and rates will not be lifted until prices are back in the 2% - 3% target band. On this point, the minutes noted that “This will require the labor market to be tight enough to generate wages growth that is materially higher than it is currently, this is likely to take some time and the board is prepared to be patient.”
In all, the minutes were highly supportive of the back progressing along with tightening plans when it meets again February, provided omicron hasn’t damaged the economic recovery. Given that it is still early days in this wave, however, it is still too early to tell just how damaging the omicron outbreak will prove, adding cause for some uncertainty near term.
Technical Views
AUD/CAD
The AUD/CAD ally off the bear channel low and .8959 - .9026 support region has seen price trading back firmly above the .9112 level. Price is now approaching the bear channel top and .9251 / .9267 resistance region. With both MACD and RSI firmly bullish, a break above this region will mark a strong bullish development, turning focus to .9391 next.