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AUD/USD Steady Near Highs, RBA Minutes Offer Tweaks Only

AUD/USD Steady Near Highs, RBA Minutes Offer Tweaks Only

David Cottle, Analyst


Talking Points:

  • AUD/USD spiked up a little then slipped back following the release of September’s RBA minutes
  • There was little new for investors to focus on, and in any case the US Fed policy call looms
  • There was emphasis on US Dollar weakness as being behind AUD gains

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The Australian Dollar saw a short-lived spike Tuesday following the release of minutes from the Reserve Bank of Australia’s last monetary policy conclave which focused on US Dollar weakness as being behind the currency’s recent strength.

This may in turn mean that the Australian central bank is less inclined to do anything about that strength, for all its oft-stated worries about its effects on the economy.

The Reserve Bank of Australia left its key Official Cash Rate on hold at a record low of 1.50%, on September 4, as had been universally expected. It rate-setters professed themselves concerned about the sustainability of growth and Aussie consumers’ enormous propensity to get themselves into debt.

These concerns were naturally evident in the minutes, with the RBA seeing the need to balance high household debt and still-low consumer prices. The former of course doesn’t argue for lower interest rates while the latter conceivably might, if sustained. Australian rate-futures markets still price a rise as the next likely move, albeit not until well into 2018.

The RBA stuck to some familiar themes, seeing a gradual pickup in growth and solid employment prospects, both of which are backed up by the most recent Gross Domestic Product and labor-market data. It also noted that, while China’s growth had been stronger than expected, high debt levels there remained a threat.

All up this was a set of minutes which offered little new, only the fine tuning of certain nuances. The market certainly seemed to take it that way, although appetite for heroics is probably very small as investors look to the US Federal Reserve’s monetary meeting on Wednesday.

On its daily chart AUD/USD appears to be in something of a rut. It has not fallen very far from the new 2017 peak hit on September 8. There is a clear appetite to hold the Aussie, as can be seen from the chart below which shows it comfortable in a region which previously had not been scaled since May, 2015.

There is a clear worry that the RBA does not want to see its currency gain much further, which is probably serving to cap gains. But further signs that the central bank is disinclined to fight clear US Dollar weakness could yet give the bulls heart to push on higher, but that will probably have to wait until investors have seen the color of the Fed’s September money.

Second-quarter house-price data were released simultaneously with the minutes and showed strength. Prices were up 10.2% on the year, some way better than the 9.2% gain analysts had been looking for.

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter: @DavidCottleFX

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