TALKING POINTS– RBA RATE DECISION, AUD/USD, US ECONOMIC DATA
- RBA holds cash rate at 1.50% as anticipated
- Aussie swung, then fell with local bond yields
- AUD/USD eyeing US data, which may disappoint
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AUDUSD violently swung between both ends of the candle and then fell alongside bond yields following the release of the RBA interest rate decision to hold rates at 1.50 percent. The monetary policy statement was left relatively unchanged from March’s release, though hints that inflation and improvement in key economic indicators will be slow and gradual.
AUD/USD – Daily Chart
The RBA also stated that growth has slowed down and that the “downside risks have increased” with a nod to deteriorating international trade relations. The central bank also omitted a line from March's statement alluding to how a rise in household income was expected to support consumption over the next year. The removal of this expectation signals a potential key vulnerability in the economy.
Concerns over slower global growth may also be another key factor that may weigh down on the cycle-sensitive Australian Dollar and force policymakers to have a more dovish disposition. The overall tone of the RBA strikes a pessimistic and cautious approach to policy relative to the last meeting. Overnight index swaps are now pricing in a 72 percent probability of a cut by the end of the year.
Looking ahead, AUD/USD will be eyeing key US economic data. Changes in non-farm payrolls will be a key point of interest because of the significant impact it may have on Fed monetary policy expectations. According to the Citi Economic Surprise Index US economic data has been tending to underperform relative to economist’ expectations. Fears over slower growth in the world’s largest economy could induce risk aversion and weigh on the Australian Dollar.
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--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter