AUD/USD bounces toward 0.6500 after 200-DMA test - BBH

AUD/USD bounced back towards 0.6500 after testing support near its 200-day moving average (0.6458). The global equity market correction is weighing on AUD. The RBA Minutes of the November 4 meeting highlighted scenarios that could guide future policy decisions. Recall, at that meeting, the RBA voted unanimously to leave the policy rate unchanged for a second straight meeting at 3.60%, BBH FX analysts report.

RBA minutes highlight scenarios for holding rates

"According to the Minutes, three scenarios could lead the RBA to hold the cash rate target at its current level: (i) the emerging recovery in demand was stronger than expected, (ii) inflation remained high over coming months or productivity growth proved to be weaker than expected, or (iii) the Board changes its assessment that monetary policy was still slightly restrictive."

"The RBA also looked at two scenarios that may warrant additional rate cuts: (i) the labor market weakens materially from its current state, or (ii) households are more cautious about spending than assumed."

"The solid Australia October labor data supports the RBA's scenario of keeping rates steady at 3.60% for some time. RBA cash rate futures imply roughly 50% probability of a 25bps cut to 3.35% in the next twelve months. Bottom line: there is room for Australia rate expectations to adjust in favor of AUD."