The Australian dollar has edged higher at the start of the week. In the European session, AUD/USD trades at 0.6715, up 0.45%. The RBA meets on Tuesday (Australia time) and is expected to pause rates. The US releases ISM Manufacturing PMI, which is expected to record another decline.
RBA likely to pause rate hikes
The RBA has aggressively tightened interest rates in the current cycle, raising rates ten straight times. The fight against inflation continues, but there has been some improvement. February CPI fell sharply to 6.8%, vs. 7.4% prior and 7.1% anticipated. Inflation is more than triple the RBA target, but the sharp rise in rates has dampened economic activity, and further hikes could jeopardize a soft landing. The RBA is widely expected to stay on the sidelines, with the market pricing in a pause at 86%.
Governor Lowe has said that in addition to inflation, employment, and consumer spending data would play a key factor in the RBA’s decision. The labor market remains tight, but retail sales hit the breaks in February and slowed to just 0.2%, down from 1.8% in January and just above the consensus estimate of 0.1%. The weak retail sales data supports the RBA taking a breather.
The banking crisis, which roiled global financial markets, raised fears of a financial meltdown. Although the contagion appears to have been contained, central banks have to think twice about raising rates in an uncertain economic landscape. If the RBA does pause, it could use the banking crisis as further ammunition in defending its decision.
US ISM Manufacturing PMI is expected to decline.
We’re seeing a decline in manufacturing across the globe as demand remains weak. The Russian invasion of Ukraine and China’s Covid-zero policy interrupted supply chains. It dampened demand, and manufacturing is yet to recover even though China has made an about-face and relaxed its Covid regulations.
The US is no exception to this disturbing global trend. ISM Manufacturing PMI has declined for four straight months, with readings below the 50 thresholds, separating expansion from contraction. The estimate is 47.5, slightly lower than the 47.7 reading in January.
AUD/USD Technical
- AUD/USD is putting pressure on resistance at 0.6737. Above, there is resistance at 0.6790
- There is support at 0.6678 and 0.6582