It's going to be a wild session for the Australian dollar, no matter what the RBA does

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Bucking the recent trend of mirroring the movements in crude oil futures, the Australian dollar pushed higher overnight, boosted by a strong session for US stocks and further tepid US economic data, this time relating to manufacturing and construction spending.

As at 7.50am AEST, the AUD/USD buys .7662, up 0.9% from Monday’s opening level.

The buoyancy in the Aussie came despite a shellacking in crude oil futures which fell by 3% following news that OPEC producers lifted production levels in April.

AUD/USD 5-Minute Chart

While there is a raft of domestic and regional economic data released today in Asia — including Australian building approvals and the Caixin-Markit China manufacturing PMI for April — almost all of the attention today will be on the Reserve Bank of Australia’s May monetary policy decision at 2.30pm AEST.

It will be a blockbuster, and likely be accompanied by extreme market volatility in the immediate aftermath of the decision.

Interest rate markets believe it’s a line-ball decision as to whether the RBA will reduce the cash rate to a fresh record low of 1.75%, while 10 of 24 economists polled by Bloomberg forecast that a rate cut will arrive this afternoon.

Although the initial market reaction will be determined by the actual rate decision, the language of the accompanying monetary could well be just as influential — perhaps even more so — than the actual rate decision.

Of most importance will be the final paragraph in which the bank will offer its policy bias, a directive to markets as to what way interest rates will likely move in the period ahead.

Whether the bank cuts rates or not, most in markets expected that the board will leave its easing bias in place, or strengthen it, when the statement is released this afternoon. This quick 10-second guide talks through some of the various scenarios that may take place, along with further information relating to today’s meeting.

Beyond the RBA decision, there’ll also be plenty of attention on tonight’s Australian federal budget that will handed down by treasurer Scott Morrison.

Though an important document, if recent history is anything to go by, its impact on financial markets — at least initially — will be muted.

The one outlier could come from commentary from ratings agencies following the release of budget, especially should one or more place Australia’s sovereign rating on watch negative, a precursor to a potential ratings downgrade ahead.

Here’s the current Australian dollar scoreboard.

  • AUD/USD 0.7662 , -0.0003 , -0.04%
  • AUD/JPY 81.55 , 0.01 , 0.01%
  • AUD/CNH 4.9629 , -0.0025 , -0.05%
  • AUD/EUR 0.6644 , 0 , 0.00%
  • AUD/GBP 0.5222 , -0.0001 , -0.02%
  • AUD/NZD 1.0904 , -0.0007 , -0.06%

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