AUD/USD – Australian Dollar Unchanged, RBA Governor Lowe Questions Rate Policy

AUD/USD has ticked lower on Friday, as the pair trades at 0.7630 in the North American session. On the release front, it’s a quiet end to the trading week. The sole US event is Flash Manufacturing PMI, with the indicator expected to remain unchanged at 52.1 points. There are no Australian events on the schedule.

There was a change of the guard at the RBA this week, as Kevin Lowe took over as governor of the central bank, replacing Glenn Stevens. In his first public appearance, Lowe testified before the House of Representatives’ Standing Committee on Economics on Wednesday. Lowe said that he did not want to follow other central banks and cut rates to zero, saying that “[t]here are better ways to stimulate the economy than to set the interest rate at zero or below zero”. He noted that continuous cuts to rates had proven less effective in promoting growth, and said that the government should improve infrastructure and support private-sector investment. In the past, the RBA has often said that it would lower rates in order to boost inflation, but Lowe said he saw no need to lower rates simply because inflation was below the bank’s target of 2-3 percent. We’ll have to wait to the next policy statement in order to better assess if the RBA’s monetary policy will shift under the newly-elected governor.

All eyes were on the Federal Reserve on Wednesday, as the central bank set interest rates and released a policy statement. As widely expected, the bank maintained the benchmark interest rate at 0.25%, where it has been pegged since last December. In a highly unusual step, however, three of the ten FOMC members dissented with the decision. Esther George, Loretta Mester and Eric Rosengren voted against holding rates steady, preferring to raise rates immediately by a quarter-percentage point. This was the first time since December 2014 that three FOMC voting members have dissented with the Fed rate decision. This significant dissent underscores that Janet Yellen has been unable to “rally the troops” behind her leadership, with one economist calling the Fed decision “one of the most decisive FOMC meetings in recent memory”.

The Fed statement noted strong growth in job gains and consumer spending, but added that business fixed investment remains weak. The Fed’s “dot plot” indicated that policymakers expect a quarter-rate hike before the end of the year. The Fed’s current stance is being called a “hawkish hold” as the Fed has put the markets on notice that a December rate hike is likely. Using typically bland language, the Fed stated that “the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.” Reading between the lines, the Fed is looking for stronger inflation numbers, and upcoming inflation indicators (as well as consumer spending and employment) will have a significant impact on the odds of a December rate hike. The Fed sounded dovish about future rate moves, scaling back projections for 2017 from three rate moves to just two hikes.

AUD/USD Fundamentals

Friday (September 23)

• 13:45 US Flash Manufacturing PMI. Estimate 52.1 points

*All release times are EDT

* Key events are in bold

AUD/USD for Friday, September 23, 2016

AUD/USD September 23 at 8:35 EDT

Open: 0.7645 High: 0.7653 Low: 0.7607 Close: 0.7631

AUD/USD Technical

• AUD/US has shown limited movement for most of the Friday session
• 0.7560 is providing support
• There is resistance at 0.7701
• Current range: 0.7560 to 0.7701

Further levels in both directions:

• Below: 0.7560, 0.7440, 0.7339 and 0.7200
• Above: 0.7701, 0.7835 and 0.7938

OANDA’s Open Positions Ratio

AUD/USD ratio is showing short positions with a small majority (53%), indicative of trader bias towards AUD/USD continuing to move to lower ground.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.