The RBA will hold its final meeting on Tuesday, December 9. The market has already priced in this final act. Following the release of the latest labor market and inflation data, there is no doubt that the central bank will keep all monetary policy parameters unchanged. The GDP and trade balance reports published last week only confirmed these assumptions.
However, this does not mean that the December meeting of the RBA members will be a "formality." Traders are interested in the central bank's future decisions. Previously, the market considered only two possible scenarios—rate cuts and maintaining the status quo. Now, some experts are not ruling out a third scenario that recently seemed implausible: an increase in interest rates.
Talk of the RBA potentially tightening monetary policy next year began at the end of November, when inflation data for October was released. Notably, with this release, the Australian Bureau of Statistics officially switched to a monthly PCE (from a quarterly format). According to this report, the Consumer Price Index (CPI) in Australia accelerated to 3.8% year-on-year, while most analysts expected it to be around 3.6%. Additionally, the overall inflation increase has been driven not only by rising energy prices; significant contributions have also come from housing (5.9%), food and non-alcoholic beverages (3.2%), and leisure and culture (3.2%). The trimmed mean index accelerated to 3.3%, settling above the three percent target.
In commenting on this release, RBA Governor Michelle Bullock acknowledged that inflation remains above the central bank's target level (2-3%). In this context, she made an important statement regarding the necessity to combat inflation. Following this, market discussions surfaced about the central bank raising interest rates next year if inflation does not begin to slow.
Thus, the RBA may tighten its rhetoric following the December meeting, stating that, amongst the discussed options, the possibility of tightening monetary policy was considered, "but it is prudent to maintain the current policy for now." Such hawkish signals would support the Australian dollar.
Key macroeconomic indicators allow the RBA to execute such a maneuver. It's not just about the CPI. For instance, there remains pressure in the Australian labor market. The unemployment rate dropped in October to 4.3% (while forecasts suggested an increase to 4.4%), and employment rose by 42,000 (forecasted growth of only 20,000). This figure has increased for two consecutive months, reaching the highest value since April of this year. It is also important to note that this rise was primarily due to full employment, while the part-time employment component remained negative (with a ratio of +55.3/-13.1 thousand).
Australia's GDP increased by 0.4% quarter-on-quarter in Q3. In the first quarter, the figure grew by 0.3% quarter-on-quarter; in the second, by 0.6%; and in the third, by 0.4%. On an annual basis, Australia's economy grew by 2.1%, following a 1.8% rise in the previous quarter. This is the strongest result in the past two years. Additionally, there is evidence of stable economic growth, with the indicator demonstrating upward dynamics for the fourth consecutive quarter.
The surplus in Australia's trade balance increased in October to AUD 4.385 billion, compared to AUD 3.938 billion in the previous month.
The volume of private sector credit increased by 0.7% month-on-month in October (forecasted at 0.6%). On an annual basis, the figure rose by 7.3% after a 7.2% increase.
In other words, the RBA is guaranteed to maintain all parameters of monetary policy unchanged and will likely adopt a "wait-and-see" rhetoric following the December meeting. However, given Bullock's previous statements, the possibility of the RBA adopting a more aggressive stance cannot be ruled out entirely. Hypothetically, this could involve an interest rate increase next year. In this case, the Australian dollar would receive substantial support, as such a scenario is not accounted for in current prices.
Technical Analysis of AUD/USD
On the daily timeframe, the AUD/USD pair is testing the 0.6650 resistance level, which corresponds to the upper band of the Bollinger Bands indicator. The price remains above all lines of the Ichimoku indicator, which has formed a bullish "Parade of Lines" signal. A similar pattern has emerged on the W1 timeframe. All of this suggests a preference for long positions during corrective pullbacks. The initial target for the upward movement is 0.6650. If buyers overcome this price barrier, the next target for the bullish trend will be the 0.6710 level (the yearly high set in September).
Long positions can be made after the appearance of corresponding signals in the support area. Short positions are likely to have limited potential, with opportunities emerging only after the formation of reversal signals in the resistance area.
