The Australian dollar’s rally has taken a pause in the Tuesday session. Currently, AUD/USD is trading at 0.7283, up 0.02% on the day.
RBA sticks to script
As expected, the RBA policy meeting was a sleeper. The bank maintained interest rates at a record low of 0.10% and its QE programme of AUD 4 billion/week. In his rate statement, RBA Governor Lowe noted that inflation was running at 1.75%, below the RBA’s inflation target. Lowe stressed that the RBA would not raise rates until inflation was within this target, which he expected would not occur prior to 2024. The bank has been criticized for maintaining interest rates despite the surge in house prices. Lowe acknowledged that housing prices had risen, but gave no indication that this would affect the bank’s monetary policy.
As for the economy, Lowe said that the Delta outbreak had hurt the recovery and GDP was expected to have “declined materially” in the third quarter. Still, Lowe sounded cautiously optimistic, adding that the economy would bounce back once, the vaccine program accelerated and restrictions were being eased. Bottom line? This rates statement was very similar to the September statement, meaning that nothing had really changed in the past month, as far as the Bank was concerned.
Lowe deserves full credit for being clear and candid with the markets in his communication with the financial markets – I am reminded at scratching my head in bewilderment whenever I came across Federal Reserve Chair Alan Greenspan’s notorious Fedspeak). Lowe said that the RBA will consider raising rates once inflation crosses the 2% threshold, which could occur in the next few months. Although a hike in rate is dependent on other factors, such as wage growth and job creation, if (when?) inflation shoots above 2%, speculation will no doubt increase about a possible rate hike, which would give the Australian dollar a lift.
- There is resistance at 0.7325. Next, there is resistance at 0.7389, protecting the round number of 0.7400
- The pair has support at 0.7184. Below, there is support at 0.7107
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