The Australian dollar is lower as central banks take centre stage

Photo by Ryan Pierse/Getty Images

After recording its largest two-week rally in nearly five years, the Australian dollar rally took a breather overnight, weighed down by profit-taking, weaker commodity prices and caution before the upcoming US rate decision on Wednesday afternoon (Thursday 5am AEDT).

As at 8.15am AEDT, the AUD/USD currently buys 0.7501, down 1.2% from Monday’s high of 0.7593.

According to Joseph Capurso, currency strategist at the CBA, the RBA’s March monetary policy meeting minutes will take centre stage for the Aussie today. Our emphasis in bold.

“The minutes should show the RBA’s focus is around the balance of risks in the global economy” and “will reiterate the RBA’s conditional easing bias,” said Capurso in his morning note.

“One particular point of focus that could generate market attention and AUD volatility is any commentary related to the minor change in the wording of the easing bias. In the March post-meeting statement, the RBA noted that the ‘continued low inflation would provide scope for easier policy, should that be appropriate to lend support to demand’. Previously the RBA stated that the inflation outlook ‘may’ provide scope.”

Alongside that area of focus, Capurso suggests that “the minutes may also reveal the RBA is becoming a little uncomfortable with the recent lift in the AUD”.

After the RBA minutes have been digested by the markets, something that Capurso suggests will likely see a period of consolidation in the Aussie, all attention will switch to the Bank of Japan’s monetary policy decision due out at some point this afternoon.

After stunning markets in January by adopting a negative interest rate policy, the CBA, like many others, expects the bank will hold policy steady at the conclusion of this meeting. However, as demonstrated on January 29, that doesn’t mean that the bank won’t act. They can, and have, given similar scenarios in the past.

Generally the decision arrives after 2pm AEDT. The unwritten rule in markets is that the longer the decision takes to arrive, the more likely it is that the bank has changed policy.

Regardless if they adjust policy or not, expect volatility, including in the Aussie, in the period following the announcement.

Here’s the current Aussie dollar scoreboard.

  • AUD/USD 0.7501 , -0.0012 , -0.16%
  • AUD/JPY 85.34 , -0.19 , -0.22%
  • AUD/CNH 4.8699 , -0.0093 , -0.19%
  • AUD/EUR 0.6756 , -0.0009 , -0.13%
  • AUD/GBP 0.5242 , -0.0013 , -0.25%
  • AUD/NZD 1.1239 , -0.0011 , -0.10%

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.