The RBA minutes retained a hawkish tone despite softer labour-market conditions, although policymakers appear to have time on their side before considering another rate hike. With business confidence deteriorating and Australian jobs data and US CPI looming, AUD/USD remains below 70c, leaving the 0.7000 resistance area in focus this week.
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AUD/USD Outlook: Hawkish RBA Meets Softer Business Confidence
Business Confidence Weakens as Forward Orders Lag
The RBA minutes retained a hawkish tone overall, although time appears to be on their side for the next hike - assuming one arrives at all. While policymakers remain alert to inflation pressures beyond the obvious impact of higher energy prices, they also need to weigh softer business and consumer sentiment.
Business confidence deteriorated for a third consecutive month in September, marking its 10th straight month in pessimistic territory according to the latest NAB survey. Inflation concerns, higher interest rates and global uncertainty remain the usual suspects, with NAB noting that “confidence remains negative in all industries except mining” in trend terms. Business conditions were unchanged at -1, leaving them around seven points below their long-run average.
However, while businesses are still increasing capex, suggesting they remain willing to invest in future capacity, forward orders remain negative. That points to a demand pipeline that is not improving at the same pace as investment - a potentially uncomfortable combination if it persists.
Source: NAB, LSEG
RBA Minutes Keep Another Hike in Play
Against that softer backdrop, the minutes showed policymakers remain more concerned about persistent inflation than near-term weakness in activity. The Board judged that domestic capacity pressures may be stronger than previously thought, while weak productivity, elevated business inflation expectations and the risk of higher energy costs and AI-related investment were all cited as potential sources of further pressure. Falling house prices were also seen as having only a modest effect on consumption.
Even so, the minutes suggest the RBA still has scope to move cautiously. The Board considered holding rates and acknowledged softer activity risks, leaving another hike firmly in play without implying any urgency. The timing will depend on whether incoming inflation and labour-market data confirm that current policy is still not restrictive enough.
Ultimately, the RBA appears to have time on its side. It can keep the threat of another hike firmly on the table without necessarily having to deliver one, particularly while softer activity and sentiment provide scope to assess how previous tightening feeds through.
Australian Jobs Report Could Shape the RBA’s Next Move
Attention now shifts to Thursday’s labour force report after unemployment rose to 4.6% last month despite a solid headline jobs gain, with full-time employment falling and participation increasing thanks to a rise in part-time work. Another soft composition or further rise in unemployment would strengthen the case for the RBA to wait, while a firmer report could keep another hike firmly in play.
AUD/USD Technical Analysis: Australian Dollar vs US Dollar
The Aussie is holding up well despite the US dollar index rising to an 18-month high on Monday, supported by elevated Treasury yields, geopolitical risks and euro weakness. Hawkish comments from the Fed’s Hammack provided an additional tailwind.
While the Aussie remains in a clear downtrend on the daily chart, it is still within a corrective phase – potentially forming an ABC retracement. With the 200-day EMA and 70c handle providing resistance, bears may seek to fade rallies into these levels, especially if US CPI heats up as expected.
However, with the US dollar index already well bid ahead of US CPI and Kevin Warsh’s remarks, there is room for disappointment and a weaker dollar if hawkish expectations are not met. Either way, the 70c area looks set to be an important pivot zone for AUD/USD traders this week.
Source: ICE, TradingView
