All Eyes On RBA

AUD/USD lost some altitude on Monday, as the central bank week got underway, with the RBA due to deliver its monetary policy decision today, ahead of Wednesday's conclusion of FOMC meeting. The pair faltered to its lowest point since the last day of January.

• The much firmer than expected Q122 CPI print has tilted the scales towards a cash rate hike at the end of the meeting. The MNI markets team has slight bias towards a 15bp cash rate target hike at this meeting, although we concede that this is a close call. We don’t see the impending Federal Election as an impedimentary factor to tightening. The Bank’s guidance paragraph will be monitored for views re: the velocity of additional rate hikes (assuming a 15bp rate hike is deployed). There is a high bar for the RBA to provide an outright hawkish surprise vs. already aggressive market pricing of future tightening. The RBA will also make a decision on what it intends to do from the proceeds of maturing bonds held under the bond purchasing schemes employed as part of its response to COVID-19. We expect the Bank to outline a passive run off of maturing bonds held on its balance sheet. See our full preview of the decision here.
• AUD/USD trades flat at $0.7050. From a technical perspective, bears look for renewed losses past Jan 31 low of $0.6985 and towards Jan 28 low of $0.6968. On the flip side, a clearance of Apr 29 high of $0.7180 would bring Apr 25 high of $0.7261 into view.
• AUD/USD overnight implied volatility has crept higher this morning, reaching levels last seen on the eve of the RBA's Mar 2021 monetary policy meeting. Implied volatilities further out the curve have also edged higher.