A new surprise awaits the Australian dollar traders this year. The Finance Minister Josh Frydenburg told the Australian Financial Review that his Liberal party would hold an independent review of the RBA's monetary policy mandate.

It is especially if it wins the federal election in the upcoming months. The Similar comments have been made by his opponent, the Labour party lately. One focus in the review is likely to be the inflation target. 

There is an important question which needs to be answered by the market participants and some parties. To be precise, does the Australian central bank (RBA) need to revise its inflation target to be aligned with other major central banks such as the RBNZ, BoC, and BoE? 

The Target of Inflation Reaches 2 – 3%

One potential area of discussion is the RBA's inflation target of 2-3% (with an effective midpoint of 2.5%). That target is 0.5% higher than the ones of all its peers.

This thing was said by Greg Anderson of BMO Capital Markets. If a review of the RBA's mandate has implications for a reduction in its inflation target, the hurdles for them to raise rates are reduced. 

Consequently, the Australian dollar's rate projection this year has the potential to become more bullish. A review of the RBA's mandate could also focus on the property price issues.

The Australian housing prices have "heated up" to become one of the "hottest" topics in the local political debate. A number of RBA officials also acknowledged about this. 

The Rate Policies Will Affect the Housing Prices 

They understand that its interest rate policy did result in rising housing prices – in addition to a lack of adequate housing supply in parts of Australia . 

If the Australian politicians there choose to impose the responsibility of "cooling" the property market to the central bank, the RBA is likely to be desperate to raise interest rates more.

It is also potentially bullish for the AUD. That is as the RBA's current policy guidance hints at the slowest possible "rate hike" compared to other major central banks. 

The Australian dollar has not responded to the review of the mandate. There are no concrete details from the authorities, so speculation is likely to continue until after australia's federal election.

The review itself could potentially be held on or before May 21, 2022. Meanwhile, The U.S. dollar index (DXY) plunged to the 95.70s at the end of last week.

What Causes the Weakness of USD

That situation due to the disappointing December 2021 release of Non-farm Payroll data. However, the DXY climbed again into the range of 95.90s in Asian session trading on Monday (January 10). 

The Commodity Dollar was still gallant against the Greenback, but the EUR/USD was flailing. An increasingly close labor market situation of "full-employment" brings an effect. 

That will allow the America’s Federal Reserve to continue its monetary policy tightening plan this year. It is also propping up the appreciation of USD in the market. 

In addition, the market participants also expect the release of inflation data there and testimony from a number of Fed officials in the coming week may support the prospect of a rate hike starting in March.

The Two Important Events in the Upcoming Week

So far, there will be two important events that is going to be held in the upcoming week. First, Federal Reserve Chairman Jerome Powell and Governor Lael Brainard will testify something .

That is before the members of the Senate starting Tuesday on their nominations as Chairman and Vice Chairman of the Fed. Second, the publication of the consumer inflation data on Wednesday.

It is likely to feature a continued rise of up to 7 percent (Year-on-Year). The dollar index this week is likely to hit back in part from its decline on Friday amid possible Powell's hawkish comments and rising Inflation.