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Australian Dollar Dips After RBA Report, Looks Very Heavy

Australian Dollar Dips After RBA Report, Looks Very Heavy

David Cottle, Analyst


Talking Points:

  • The Reserve Bank of Australia remained cautiously upbeat on Australia’s prospects
  • Home loans slipped much further than forecast
  • The Australian Dollar dipped but remains under broad pressure

Find out what the retail foreign exchange community makes of the Australian Dollar’s chances at the DailyFX Sentiment Page.

The Australian Dollar ticked lower Friday following the Reserve Bank of Australia’s quarterly monetary policy statement.

The RBA once again said that an appreciating currency would dampen the outlook for domestic growth and inflation. However, this is a song that it almost always sings so it’s unlikely to have had much market impact. The central bank trimmed its unemployment forecasts slightly out to mid-2019 (now 5.25% rather than 5.5%), but kept its forecast for underlying inflation just about unchanged, expecting core consumer price growth of 2% by the end of 2019. In a steady-as-she-goes statement the RBA noted modest improvements in household consumption and a sunny outlook for business investment.

Growth is expected to remain reasonably perky by developed-market standards. Gross Domestic Product gains of 3.2% are still forecast this year and next.

In truth there was little here that markets didn’t know or couldn’t guess and it must be at least as likely that home-loan figures released at the same time were what weighed on AUD/USD. December loan levels fell 2.3% versus an expected 1% slip.

The RBA left its key Official Cash Rate on hold at a record low of 1.50% this month, as had been universally expected. Markets think the next move when it comes will be a rise but they don’t expect it until the end of this year at the earliest according to rate-futures market pricing.

The Australian Dollar remains under broad pressure on its daily chart and that’s not really surprising. In the spectrum of global currencies, the Aussie sits firmly in the ‘risk on’ camp, seen as an asset likely to do well when global growth is set fair. This thesis may rest too heavily on Australia’s raw material export success- which links it to growth well beyond its shores- but it’s a tenacious one.

In any event heightened global volatility, sliding crude oil prices and equity duress rarely flatter the currency and sure enough they’ve failed to do so this week. AUD/USD sits at six-week lows. It’s now hovering just above 0.7746 which is the 61.8% Fibonacci retracement of its rise from December’s lows to January’s peak.

Should that level give way then that entire rise would be thrown into some doubt, with the 0.7500 area on the cards should those doubts become trading action. However, the Aussie is starting to look a little oversold now and consolidation above that 0.7746 level might actually count as a notable bullish fightback.

--- Written by David Cottle, DailyFX Research

Follow David on Twitter at @DavidCottleFX or use the comments section below to get in touch

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