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    AUD/USD: RBA kept interest rate at 1.75%. Fundamental analysis as of 07.06.2016.


    The combination of several fundamental factors allowed the AUD/USD pair to grow by 200 points in just 3 days and claw back almost half of the previous month's losses after RBA decreased interest rates to 1.75% at the beginning of May - the first time since June 2015.

    As soon as Friday’s disappointing data on US non-farm payrolls decreased expectations of US interest rate hike in June, the US dollar collapsed all around the market, including the pair AUD/USD. Fed Head Yellen's statement was rather ambiguous and confirmed Fed's intention to approach an interest rate rise with caution. Lower interest rates put pressure on the USD making it less attractive for investors.

    However, neither did Yellen's statement contain any indication of a gradual phasing out of US monetary police tightening.

    Another important event for AUD/USD has taken place today when RBA kept the interest rate unchanged at 1.75%. RBA said in a statement that the current interest rate level would stimulate economic growth and contribute to an inflation rollback to target levels.

    RBA dropped the interest rate in May once the statistics had indicated deflation in the first quarter 2016, for the first time since 2008 financial crisis.

    The Reserve Bank of Australia downgraded inflation forecasts below 2% in 2016. Inflation will remain below or near the lower border of 2%-3% target range in the nearest years.

    Low inflation may force RBA to drop the interest rate to 1.5% in August. Before doing so, RBA will analyse inflation data, the results of a UK vote concerning UK exit from the EU, and Fed’s interest rate decision to be taken in June ad July.

    However, a risk balance is still shifted to a rate cut probability, which will continue to put pressure on the AUD/USD pair in the medium term despite a dynamic short-term upward correction that started in June. All will depend on the way RBA assesses an inflation level and the current economic situation in Australia.

    AUD/USD: RBA kept interest rate at 1.75%.  Fundamental analysis as of 07.06.2016.


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