RBA held its reference rate at 3.00%, meeting market expectations.
In the accompanying statement, Governor Glenn Stevens reiterated that AUD is still “higher than might have been expected”, despite significant easing in 2012. Full impact of 2012 rate cuts will “take more time to become apparent”, though RBA has been afforded scope to ease “should that be necessary” due to inflation risks lowering. Outlook of Australia is also less positive, with employment looking softer recently. Return to “very strong growth” is unlikely, and investments in resources sector has peaked, while other sectors remain subdued. Global growth is forecast to be “a little below average”, while China remain “robust” and US and Europe have stabilized.
Certainly nothing is new from this meeting statement versus the last one back in Feb. Even the phrase “would afford scope to ease policy further, should that be necessary to support demand” is identical word for word. And just like how market is tired of BOJ’s rhetoric, the “Dovish” RBA statement failed to instil confidence that RBA will actually ease, and AUD/USD rose significantly.
Price was trading in the Kumo, and was being rebuffed away from Senkou Span B, when the RBA rate decision pushed price much higher, resulting in a bullish Kumo breakout. At the same time, we are looking at a confirmation of the bullish bias with the bullish Kumo Twist. To fully appreciate the significance of a bullish break here, we need only to turn to Stochastic, with readings almost breaking below 80.0 before the RBA decision to produce a bearish signal. Unfortunately, the bears did not get their lucky break here, though they may still yet find a better price to sell into if price fails to break the 1.025 resistance.
The significance of the 1.025 resistance can be seen on the Daily chart, which as been acting as the floor for price action back in early-mid Feb. Besides 1.025, current rally is finding other resistance in the form of Channel Top which has been in play since mid Jan. It is still too early to tell if the bias is on the upside/downside as we are barely 3 hours into the new day (starting EST 00:00), but if things remain as it is (highly unlikely), the gravestone doji may encourage bears to push price back into the Channel. However, a rally from here on can be interpreted as the breakout of the descending channel especially if 1.025 line has been breached, which opens up 1.035 as potential bullish objective.
Fundamentally, it is strange to see AUD/USD rallying after the diminishing outlook in the statement. However, the rally could be due to over commitment/speculation of a rate cut last month, and we’re simply looking at a correction rather than a shift in sentiment. USD strength could still play a huge role in the direction of AUD/USD, with the sequester cuts still awaiting resolution. Further failure of GOP and Dem meeting halfway could push USD stronger due to safe haven flows, accelerating AUD/USD downside.
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