AUD/USD: will RBA cut rates once again?

   Elizaveta Belugina

Next week there will be plenty of news from Australia. The main event will certainly be the meeting of the Reserve Bank of Australia on Tuesday.

Ahead of the meeting investors and analysts have once again started debating whether the regulator will lower the interest rate or leave it unchanged. In February the central bank has cut the rate to the record low of 2.25%.

On the one hand, the minutes of the February RBA meeting has showed that the central bank is worried by high housing prices. Lower rates may inflate this bubble even more, so this is an argument against the RBA’s rate hike.

On the other hand, the RBA usually lowers rates during 2 meetings in a row and this time the central bank really has reasons to do that: the unemployment rate has jumped to 12-month high, while capital expenditure contracted. In addition, cheap fuel is pulling inflation below the RBA’s target range, and Australian dollar has risen to 79 cents, while the RBA considered the 75 cent level as fair.

The RBA’s move will depend on what the Federal Reserve’s position. The longer it takes the Fed to make a decision about the interest rate hikes, the more incentive will be there for the RBA to act in order to stop AUD from rising too much.

In the recent days, the odds of the RBA’s rate cut increased to more than 50%. The pair has approached a long-term resistance line and this time we are with the bears.


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