THE TAKEWAY: RBA reports minutes as rather hawkish for domestic economy > Interest rate expectations likely diminished, further guidance later in week > Australian Dollar gained
The Australian Dollar traded higher versus the U.S. Dollar as the Reserve Bank of Australia meeting minutes reported a rather hawkish tone for their domestic economy. The report spoke of moderately increasing job growth in the near term as well as a housing market that is continuing to find support from lower interest rates. Furthermore, the medium term inflation target appears to be on track according to the RBA.
The RBA also saw the Chinese economy “stabilizing at a more sustainable pace” which may ease concerns that a drop-off in Chinese export demand for Aussie resources may severely dampen increased growth prospects. There were notable risks however, as the Reserve Bank also said the Eurozone debt crisis continued to weigh on sentiment.
The Aussie currency likely rallied because expectations for interest rate cuts probably declined due to the medium-term in-line inflation target. Furthermore, The RBA cut rates several times over the past year and is likely to give the policy change ample time to produce an effect. Just a short while ago officials were discussing in a report to the Treasury of the potential for a further change in policy which could include other easing measures.
Markets continue to trade on low volume across the board and as a result volatility has been nearly non-existent. When market volatility does pick up, it’s possible that traders may look to sell their risky positions, like Australian Dollars, and move into more liquid alternatives, like the U.S dollar. Looking ahead, Governor Glenn Stevens will speak on Thursday at 23:50 GMT where additional guidance could create the necessary follow-through to influence a strong change in directional conviction.
AUD/USD, 15 Minute Chart
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