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Australian Dollar Gains As RBA Holds Rates as Expected. GDP Up Next

Australian Dollar Gains As RBA Holds Rates as Expected. GDP Up Next

David Cottle, Analyst


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Australian Dollar, Reserve Bank of Australia Monetary Policy Decision, Talking Points:

  • The RBA left its key interest rate on hold at 0.75%
  • It clearly wants to wait and gauge the effect of previous reductions
  • AUD/USD gained in the aftermath, despite this result being well priced beforehand

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The Australian Dollar gained quite sharply on Tuesday as the Reserve Bank of Australia opted to leave its key Official Cash Rate alone the 0.75% record low in place since October.

The RBA has made three quarter-point reductions to the OCR this year and its latest statement suggests it’s waiting to gauge their effects. The decision to hold steady this month was linked to ‘long lags in monetary policy,’ the accompanying statement said.

The rest of it was pretty standard fare. The RBA noted a ‘reasonable’ outlook for the global economy, with risks tilted to the downside, although in its view they have lessened lately. It flagged again its preparedness to loosen policy if needed and bemoaned the lack of wage pressure.

Given all that, AUD/USD’s sharp rise after the decision was perhaps a little surprising given that, according to ASX data, the chance of no move was put at well over 80% before the fact.

Australian Dollar Vs US Dollar, 5-Minute Chart

Still, the Australian Dollar got a notable boost this week when Chinese manufacturing data outperformed expectations, with larger, state-linked companies posting their first output expansion for seven months.

AUD/USD jumped above the upper boundary of a daily-chart downtrend channel which had previously bounded trade since November 1.

Australian Dollar Vs US Dollar, Daily Chart

However, that expansion was extremely modest, and the Australian economy is still misfiring on a number of levels, which may make that bounce one to eye with caution.

The country managed a record current account surplus in the third quarter, admittedly, but there’s little evidence that much of that is making its presence felt in key areas like consumer spending.

According to the latest data inflationary pressures have eased further, building approvals seriously underwhelmed and manufacturing activity slipped as did job advertisements.

Data due out on Wednesday are expected to show the economy expanded by 0.5% in the three months to September for an annualized quarterly gain of 1.6%. This would certainly be better than the 1.4% recorded in the second quarter – that was a decade low.

Still, as-expected numbers might well support the RBA’s call for a gradual recovery and might boost the Australian Dollar by making some investors less certain that interest rates will go much lower.

Australian Dollar Resources for Traders

Whether you’re new to trading or an old hand DailyFX has plenty of resources to help you. There’s our trading sentiment indicator which shows you live how IG clients are positioned right now. We also hold educational and analytical webinars and offer trading guides, with one specifically aimed at those new to foreign exchange markets. There’s also a Bitcoin guide. Be sure to make the most of them all. They were written by our seasoned trading experts and they’re all free.

--- Written by David Cottle, DailyFX Research

Follow David on Twitter @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.