The RBA is set to extend its interest rate break as price pressures persist

• Australia’s benchmark interest rate is likely to remain at 4.35% for the seventh consecutive meeting in September.
• Reserve Bank of Australia Governor Michele Bullock’s press conference will be in the limelight.
• The RBA’s policy statement and Bullock’s words will inject volatility around the Aussie dollar.

The Reserve Bank of Australia (RBA) is likely to continue to buck the trend taken by major central banks on the dovish policy pivot, opting to hold policy for the seventh consecutive meeting on Tuesday.

The RBA is expected to keep the official cash rate (OCR) at 4.35% after its September policy meeting. The decision will be announced at 04:30 GMT, to be followed by Governor Michele Bullock’s press conference at 05:30 GMT.

No rate cut is expected from the Reserve Bank of Australia this year

Economists and industry experts unanimously expect the central bank to hold the policy rate again after RBA governor Michele Bullock made it clear in her speech at the Anika Foundation earlier this month that “the board does not expect to be in a position to reduce rates in the near term.”.

Bullock argued that inflationary pressures, particularly in housebuilding, insurance and the rental market, remained elevated in some parts of the economy, even as Australian Treasurer Jim Chalmers expressed concern that interest rates had “crushed” the economy .

Still, Australia’s economy added more jobs than expected in August as the unemployment rate remained steady at 4.2 percent, the Australian Bureau of Statistics (ABS) reported on September 19. Strong Australian employment data pointed to resilience in the labor market in the face of a slowing economy, supporting the RBA’s view that an interest rate cut looks less likely in the near term.

RBA Deputy Governor (Economy) Sarah Hunter said earlier this month that “the labor market is still tight relative to full employment”. She added that the bank “considered current conditions to be ‘above’ full employment, with the unemployment rate needing to rise to ensure further retreat in inflation”.

Furthermore, the RBA is unlikely to act until the release of critical third quarter consumer price index (CPI) data, which could be due on October 30, which could validate the central bank’s progress on inflation.

Analyzing the RBA’s policy decision, analysts at TD Securities (TDS) said: “The RBA’s communication and data run from the Bank’s August meeting provide no compelling reason for a change in stance at this week’s meeting, barring a rate cut of the rate this year. “

How will RBA interest rate decision affect AUD/USD?

The Australian dollar (AUD) is trading near an eight-month high against the US dollar (USD), heading into risk of the RBA event. The continued uptrend in the AUD/USD pair could mainly be attributed to diverging monetary policy outlooks between the US Federal Reserve (Fed), which has just started its easing cycle, and the RBA.

The Fed announced a 50bps rate cut at its September meeting last week, bringing the federal funds rate to a range of 4.75%-5.0%. Instead, markets expect the RBA to go for the first 25 basis points cut to 4.10% only until February 2025, according to the ASX RBA Rate Tracker.

If RBA Governor Bullock sticks to her hawkish rhetoric reiterating that “it is premature to think about rate cuts”, AUD/USD could extend the ongoing uptrend to test the 0.6900 threshold.

Alternatively, the pair could come under intense selling pressure and target the 0.6700 level should Bullock acknowledge the economic slowdown, which could help reduce price pressures in the coming months.

With a rate change decision already on the cards, the language in the policy statement and Bullock’s remarks during the press conference will attract attention and provide new directional impetus to Australian traders.

Dhwani Mehta, Lead Asia Analyst at FXStreet, notes the key technicals for AUD/USD trading on the policy outcome. “AUD/USD is near eight-month highs above 0.6800 as RBA decision looms. The 14-day Relative Strength Index (RSI) points north above the 50 level, currently near 64.50, supporting bullish potential for the Aussie.”

“Buyers need to increase static resistance around 0.6900 for a sustained uptrend. The next barrier on the upside is seen at the psychological level of 0.6950 on the way to the 0.7000 threshold. On the other hand, any corrective decline could meet the initial demand area at the 21-day simple moving average (SMA) of 0.6747, below which a new downtrend towards 0.6670 cannot be ruled out. This level is the confluence of the 50-day and 100-day SMA,” adds Dhwani.