Reserve Bank of Australia (RBA) will be meeting tonight, June 7th 12:30AM EST, to decide on interest rates.  Current interest rate stands at 4.75% and is the highest amongst the major currencies. 

The consensus is that they will remain on hold with rates however the language of the statement will drive volatility.

The last time the RBA met was on May 3rd and they left rates unchanged even though they expected inflation to rise.  They felt the strong Aussie exchange rate would help to hold prices down.  Regardless of the current currency rate, AUD/USD 1.0725, RBA will have to continue to increase rates at some point later in the year given the upward trend of inflation.

Here is how the Australian Economy has fared since the last RBA meeting:

  • Retail Sales increased to 1.1% from -.3%
  • Westpac Consumer Confidence decreased to -1.3% from 1.2%
  • Unemployment rate stayed unchanged at 4.9%, however Australia lost 22K jobs in April
  • Housing market has deteriorated with lower new homes and lower building permits
  • Lower Manufacturing PMI numbers, AIG PMI Manufacturing 47.1 vs. 48.4, AIG PMI Services 49.9 vs. 51.5
  • Negative Growth, -1.2% vs. .8%

With the slow deterioration in the Australian Economy, it makes sense for RBA to keep rates unchanged.  However, recent comments by RBA suggest that the slowdown is temporary.  On June 8th, the employment numbers in Australia come out which could be the first set of economic indicators proving the slowdown to be temporary.

Technical Corner:

AUD/USD

Support level: 1.0609

Resistance level: 1.0796

If AUD/USD goes to 1.08-1.0850, I would look to sell as risk off continues for the rest of the week as indicated by S&P.