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Australian Dollar Gains as RBA Takes on a Wait-and-See Approach

Australian Dollar Gains as RBA Takes on a Wait-and-See Approach

2016-06-07 05:16:00
Daniel Dubrovsky, Analyst
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Talking Points

  • Australian Dollar climbs against its major counterparts
  • RBA holds rates in June, adopts wait-and-see approach
  • Bond yield reaction likely due to lower RBA rate cut bets

The Australian Dollar gained against its major counterparts in early Asia trade as the Reserve Bank of Australia interest rate decision crossed the wires. Last month, the RBA cut its benchmark lending rate after a dismal 1Q CPI release. Heading into the announcement, traders were looking to ascertain if the central bank’s last adjustment was a one-off, or a pause before resuming policy stimulus expansion.

The Reserve Bank of Australia ended up holding rates unchanged at 1.75 percent as expected. The RBA added that inflation has been quite low and that this is expected to remain the case for some time. In addition, the central bank said that an unchanged policy is consistent with CPI and sustainable growth returning to target over time.

As the Aussie Dollar rallied, Australian front-end government bond yields followed suit. With overnight index swaps still pricing in at least 1 RBA rate cut over the next year, the markets likely saw today’s announcement as impeding on near-term priced in policy easing. Failing to show any signs of imminent cutting on the horizon, the Reserve Bank of Australia appears to have taken on a wait-and-see approach.

Meanwhile, the DailyFX Speculative Sentiment Index (SSI) is showing a reading of 1.2 following the announcement, meaning that for every trader short the AUD/USD, there are 1.2 on the long side. The SSI is a contrarian indicator, implying further AUD/USD weakness ahead.

Want to learn more about the DailyFX SSI indicator? Click here to watch a tutorial.

Australian Dollar Gains as RBA Takes on a Wait-and-See ApproachAustralian Dollar Gains as RBA Takes on a Wait-and-See Approach

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