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Wait-and-See RBA to Keep AUD/USD Under Pressure

Wait-and-See RBA to Keep AUD/USD Under Pressure

2018-08-07 03:00:00
David Song, Currency Strategist
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Trading the News: Reserve Bank of Australia (RBA) Interest Rate Decision

The Reserve Bank of Australia (RBA) interest rate decision may keep AUD/USD under pressure as the central bank is widely expected to keep the official cash rate (OCR) at the record-low of 1.50%.

Image of DailyFX economic calendar

Fresh comments from the RBA may do little to influence the Australian dollar as the central bank persistently promotes a wait-and-see approach for monetary policy, and officials may continue to tame bets for an imminent adjustment in the cash rate as ‘the low level of interest rates is continuing to support the Australian economy.

As a result, the RBA may merely attempt to buy more time, and more of the same from Governor Philip Lowe & Co. may ultimately produce headwinds for AUD/USD especially as the Federal Reserve appears to be on track to implement additional rate-hikes in 2018.

However, an unexpected shift in the forward-guidance for monetary policy is likely to trigger a bullish reaction as it fuels bets for an RBA rate-hike, and a material adjustment in the central bank rhetoric should heighten the appeal of the Australian dollar as officials prepare to switch gears. Sign up and join DailyFX Junior Currency Analyst Daniel Dubrovsky LIVE to cover the RBA meeting.

Impact that the RBA rate decision had on AUD/USD during the previous meeting

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JUL

2018

07/03/2018 04:30:00 GMT

1.50%

1.50%

+17

+47

July 2018 Reserve Bank of Australia (RBA) Interest Rate Decision

AUD/USD 5-Minute Chart

Image of AUDUSD 5-Minute chart

As expected, the Reserve Bank of Australia (RBA) held the official cash rate (OCR) at the record-low of 1.50% in July, and it seems as though the central bank will stick to the current policy for the foreseeable future as ‘inflation is low and is likely to remain so for some time, reflecting low growth in labour costs and strong competition in retailing.’ The comments suggest the RBA is in no rush to implement higher borrowing-costs as ‘household income has been growing slowly and debt levels are high,’ and Governor Philip Lowe & Co. may stick to the current script throughout 2018 as ‘one uncertainty regarding the global outlook stems from the direction of international trade policy in the United States.

Despite the limited reaction, the Australian dollar gained ground following the RBA meeting, with AUD/USD climbing above the 0.7350 region to close the day at 0.7386. Learn more with the DailyFX Advanced Guide for Trading the News.

AUD/USD Daily Chart

Image of audusd daily chart
  • Broader outlook for AUD/USD remains tilted to the downside as both price and the Relative Strength Index (RSI) preserve the bearish formations from earlier this year, with recent developments in the momentum indicator highlighting the risk for a further decline in the exchange rate as it appears to be snapping the upward trend from June.
  • Still need a close below the 0.7320 (50% expansion) to 0.7340 (61.8% retracement) region to open up the downside targets, with the next hurdle around 0.7180 (61.8% retracement) to 0.7230 (61.8% expansion) followed by the overlap around 0.7090 to 0.7110 (78.6% retracement).

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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