RBA today may matter less than CPI tomorrow – OCBC

The Australian dollar (AUD) strengthened this morning in response to China’s stimulus measures. The pair was last at 0.6844, note OCBC FX strategists Frances Cheung and Christopher Wong.

The RBA’s priority is to reduce inflation to its target

“The bullish momentum on the daily chart is intact, while RSI growth moderates near overbought conditions. Resistance at 0.6870 (2024 high), 0.69 levels. Support at 0.6750 (21 DMA), 0.6675 (50, 100 DMA). Possibly tomorrow’s CPI release could matter more for the AUD than the RBA MPC later (as markets largely expected the RBA to hold).

“Any data print downside may renew market bets on the RBA to cut and the AUD may pull back on that. For the RBA MPC later today (1230pm SGT), there was some talk that the RBA could present its plans to cut interest rates after the larger-than-expected scale of Fed tapering last week. We doubt Fed tapering has much influence and still look for the RBA to keep the cash rate at 4.35%.

“RBA Governor Bullock said earlier that it is premature to think about interest rate cuts as the RBA’s priority is to reduce inflation to the 2-3% target range. She explained that the RBA’s board was trying to balance reducing inflation within a reasonable timeframe and holding on to as much as possible of recent gains in Australia’s labor market, with unemployment at a low 4.2%.