The Reserve Bank of Australia (RBA) left the official cash rate on hold at 2.00% as expected, while retaining its implicit easing bias. The bank noted that Australia’s uncertain and somewhat bleak economic outlook requires accommodative monetary policy, especially considering the RBA isn’t getting much help from the fiscal side of the equation. This is a slightly more dovish tone from the central bank when compared with its last policy statement, but not by much. We still consider this as an implicit easing bias, as opposed to an explicit one, which is too vague for the Australian dollar; as is the bank’s decision not to expand on its bearish stance on the exchange rate.
AUDUSD jumped to an important resistance zone around 0.7670 in the immediate aftermath of today’s policy meeting, before pushing even higher shortly thereafter. AUD bulls are making the most of the bank’s decision not introduce a more dovish tone on interest rates or a more bearish posture on the aussie, as we expected – from our RBA preview: our base case is that the RBA maintains the status quo, as it may want to keep its options open given Australia’s uncertain economic outlook, which could lead to a short-term relief rally in AUD.
Nonetheless, we definitely aren’t ruling out the possibility of another rate cut in Australia, especially if the aussie regains some lost ground and economic data continues to disappoint. On the latter point, we’re expecting Australia’s Q1 growth figures tomorrow at 0130GMT/1130AEST. The market is expecting the economy to have expanded 0.6% q/q last quarter, although the risk of a disappointing figure was increased by Q1’s abysmal CAEPX numbers.
AUDUSD broke some resistance around 0.7680 and tested trend line resistance, before drifting back below this level. While the pair remains in a medium-term downward trend, there are some indications that price may be heading higher from here. There’s a bullish divergence between price and RSI on a 240min chart which suggests that bulls may be gathering momentum, although we need to see a break of downward trend line resistance before becoming too bullish.