Australian dollar slips on dovish RBA

The Australian dollar has posted considerable losses on Tuesday. In the North American session, AUD/USD is trading at 0.7681, down 0.39% on the day.

The Australian dollar headed lower on Tuesday, in response to the RBA minutes from the policy meeting earlier in June. The minutes were decidedly dovish, as the RBA pledged its commitment to maintain interest rates close to zero for some time yet. Australia’s economy has recovered well, and the RBA is projecting that inflation in 2021 will rise above 3%. This is above the bank’s inflation target of 2-3%, but the bank has poured cold water on any speculation that high inflation will translate into tighter policy. Borrowing a page from the Federal Reserve’s playbook, the RBA says that it expects the surge in inflation to be temporary and expects inflation to quickly fall below its target.

Fed likely to remain dovish at FOMC meeting

The Fed has been very consistent in its message to the markets that it is committed to an ultra-loose policy and has no plans to tighten policy. Still, the markets could use some hand-holding from the Fed at the Wednesday meeting. Investors are feeling nervous about higher inflation in the US, as pent-up demand in travel and hospitality saw CPI jump to 5 per cent in May. If there are signs that the surge in inflation is sustained and not merely transient, then the Fed may be forced to raise rates sooner rather than later. If the meeting indicates that some members are in favor of a tighter policy, or at least having a talk about it, then the US dollar could respond with gains.

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AUD/USD Technical

• There are resistance lines at 0.7757 and 0.7810
• On the downside, 0.7669 is under pressure and could be tested during the day. Below, there is support at 0.7634

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