RBA Seen Holding Cash Rate as Hawkish Stance Underpins AUD

Key Takeaways:

*Markets assign a near-99% probability of a policy pause as the central bank balances persistent inflation against resilient domestic demand.

*The Australian dollar holds firm near 0.6530, supported by the RBA’s data-dependent stance and sticky services inflation.

*With the hold decision priced in, traders will parse Governor Bullock’s remarks for clues on inflation tolerance and the potential for further tightening.

Market Summary: 

The Reserve Bank of Australia is widely expected to maintain its official rate at 3.60% at today’s meeting, with interbank futures implying a near-99% probability of a pause. The Australian dollar remains a notable performer, with AUD/USD consolidating around the 0.6530 level despite broader U.S. dollar strength. This resilience is underpinned by the central bank’s entrenched hawkish posture and a recent inflation report that surprised markets to the upside, complicating the disinflationary narrative.

The currency’s firmness reflects market confidence in the RBA’s data-dependent commitment to a sufficiently restrictive policy setting. Under Governor Michele Bullock, the Board has signaled a clear reluctance to entertain rate cuts while services inflation remains stubbornly elevated and the labour market continues to demonstrate remarkable tightness. Recent economic indicators, including robust retail sales and stronger-than-anticipated wage growth, further justify this cautious stance and argue forcefully against any premature policy easing.

With a hold decision so overwhelmingly priced into asset values, the immediate market reaction to the announcement itself is likely to be subdued. Consequently, the primary focus for traders and analysts will be intensely focused on the nuances of the accompanying Statement on Monetary Policy and, more critically, the tone struck by Governor Bullock in the subsequent press conference. Scrutiny will fall on any changes in the Board’s assessment of the inflation outlook and its tolerance for a slower return to the target band.

A firm reiteration of the bank’s hawkish bias, particularly an emphasis on the willingness to tighten policy further if needed, would likely extend support for the Australian dollar, potentially catalyzing a test of nearby resistance levels. Conversely, any deviation toward a more balanced or cautious outlook, such as highlighting increased concerns over consumption growth, would likely temper the currency’s recent strength and could trigger a swift repricing of forward rate expectations. 

Technical Analysis 

EURAUD, H4:

The EUR/AUD pair is exhibiting a bearish technical structure, having undergone a corrective phase following the completion of a double-top pattern near the 1.8100 resistance level. The sell-off has subsequently found a firm base around the critical support zone of 1.7570, where a triple-bottom formation is currently under scrutiny.

This support level represents a pivotal technical juncture for the pair. A sustained break below 1.7570 would constitute a significant bearish signal, suggesting a failure of the current consolidation and potentially triggering a more pronounced downtrend as it would confirm a breakdown below the triple-bottom support.

Momentum indicators align with this cautious outlook. The Relative Strength Index (RSI) remains entrenched below the 50 mid-line, reflecting persistent bearish momentum. Concurrently, the Moving Average Convergence Divergence (MACD) histogram is flat but trades below its zero line, corroborating the negative near-term bias. The pair’s direction will likely be determined by its ability to defend the 1.7570 support, with a breach opening the path for further downside.

Resistance level: 1.7670, 1.7820

Support level:1.7477, 1.7255