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Australian Dollar Struggles to Hold Gains as RBA Concludes 2017

Australian Dollar Struggles to Hold Gains as RBA Concludes 2017

Daniel Dubrovsky, Contributing Senior Strategist


Talking Points:

  • The Reserve Bank of Australia leaves cash rate unchanged as expected, wrapping up 2017
  • Australian Dollar struggles to capitalize on more gains after positive retail and Chinese data
  • The central bank said inflation is likely to pick and removed a couple of important notes

See how the Australian Dollar is viewed by the trading community at the DailyFX Sentiment Page.

After capitalizing on a barrage of positive retail sales and Caixin PMI data, the Australian Dollar appeared to struggle holding on to more gains after December’s RBA rate announcement. The central bank left its key rate unchanged as expected at 1.50%. However, that was not what appeared to excite the markets.

The central bank removed a couple of important notes from its November statement. The first one is that a higher exchange rate is “weighing on the outlook for output and employment”. The second one is that “inflation is likely to remain low for some time”. Meanwhile, it reiterated that prices are forecasted to pick up gradually as the economy strengthens.

That may have been what encouraged the markets into going long Aussie Dollar. However, the RBA also said that “there are reports that some employers are finding it more difficult to hire workers with the necessary skills”. In addition, the central bank said that wage growth remains low.

Moreover, the Reserve Bank of Australia once again reminded us that rates are where they need to be to achieve the inflation target over time. The markets think that the next hike will come by December 2018, but the central bank hasn’t given us a clear sign that this may happen.

As Market Analyst David Cottle mentioned, neither the RBA nor the official GDP data is very likely to change the long downtrend in AUD/USD. Could the Aussie Dollar be running out of steam? Let’s see what the techincals have to say.

On a daily chart, AUD/USD seems to be stuck since bottoming out about two weeks ago.

Do keep an eye on the intraday IG client sentiment reading for AUD/USD. It now shows that traders are further net-long and that the recent changes gives a stronger bearish contrarian trading bias. This might mean AUD/USD could continue to fall.

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