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Australian Dollar Could Still Fall After Status Quo RBA Rate Hold

Australian Dollar Could Still Fall After Status Quo RBA Rate Hold

Daniel Dubrovsky, Strategist

Australian Dollar Talking Points:

  • Australian Dollar swings on May’s RBA status quo rate hold
  • The Aussie could fall if a hawkish Fed boosts the US Dollar
  • AUD/USD broke below a channel, can support catch it now?

Just started trading AUD/USD? Check out our beginners’ FX markets guide!

The Australian Dollar showed a rather mixed response to May’s RBA rate decision, but AUD/USD could be at risk of falling in the days ahead. Australia’s central bank left its cash rate target unchanged at 1.50% as expected. In addition, the Reserve Bank of Australia reiterated that an unchanged policy is consistent with meeting sustainable growth in the economy and achieving the inflation target over time.

Much of what was mentioned in this statement was left unchanged from the prior one. The RBA acknowledged that recent inflation data were in line with the bank’s expectations. Overall, the central bank still appears to be in no rush to raise rates at the moment. Overnight index swaps aren’t pricing in a better-than-even chance of an RBA hike until February 2019. Perhaps Governor Philip Lowe could have more to add later today at a board dinner.

With the RBA now behind us, the Australian Dollar can now focus on other domestic and external event risks. Later this week we will get local trade balance data followed by the central bank’s statement on monetary policy. While they may offer a short-term response, it is arguably the FOMC rate decision that can do more. If the US Dollar rises on comments from policymakers that echo recent rosy economic outlooks, then the Aussie may fall.

Australian Dollar Could Still Fall After Status Quo RBA Rate Hold

AUD/USD Technical Analysis: Is the Descending Channel History?

Using implied volatility, we derived the range low/high to get an idea of where AUD/USD could go in the near-term. From here, immediate support is around 0.7497 which closely aligns with both the 61.8% Fibonacci extension and the December 2017 lows. A break below that places 0.7455 as the next target.

On the other hand, if prices turn higher, then the lower line of the descending channel from February could act as former support now resistance. A push above that exposes the 50 percent midpoint of the extension around 0.7566.

Australian Dollar Could Still Fall After Status Quo RBA Rate Hold

AUD/USD Trading Resources:

--- Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com

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