Australian Dollar Rises as RBA Keeps Rates on Hold
RBA, Official Cash Rate, AUD/USD, JobKeeper Program, Covid-19 - Talking Points:
- AUD/USD nudged higher as the Reserve Bank of Australia kept interest rates steady at 0.25%
- Fiscal stimulus may dictate the Australian Dollar’s outlook with measures set to expire in September
- Could a topside break of a Descending Triangle pattern ignite a move to test the 0.72 handle?
The Australian Dollar nudged higher as the Reserve Bank of Australia kept the official cash rate (OCR) steady and in line with expectations of 0.25%.
Despite “leading indicators” suggesting “the worst of the global contraction has now passed” the central bank remains “prepared to scale-up its bond purchases again to ensure bond markets remain functional and to achieve the yield target for 3-year AGS”.
With the “nature and speed of the economic recovery” remaining “highly uncertain” the RBA believes “it is likely that fiscal and monetary support will be required for some time” – perhaps hinting at the need for an extension of the current fiscal regime.
Economic Outlook Reliant on Continuing Fiscal Support
The Australian government can be commended on its efforts to “keep Australians in work and businesses in business” as the $259 billion economic support package laid out in March has seemingly “put a floor under the economy during this extraordinary time”.
However, with the JobKeeper and enhanced JobSeeker programs set to expire on September 27, and coronavirus case numbers surging in Victoria, there is a growing concern that the local economy’s safety net may be stripped away prematurely.
A seventh consecutive monthly contraction in the Australian Performance of Services Index reinforces this uncertainty, as employers hastily adapt to the re-imposition of the New South Wales-Victoria border closure and lockdown measures in several Melbourne postcodes.
Australia Performance Services Index
Source – Trading Economics
The outlook for the Australian economy may hinge on Prime Minister Scott Morrison’s July 23 economic address, with the PM expected to make a final decision regarding the future of the JobKeeper and JobSeeker initiatives.
Although the government is coming under increasing pressure to extend the existing fiscal measures, the Prime Minister has remained defiant stating “when you’re going through more than $10 billion a month, you don’t rush these decisions”.
Given Mr Morrison’s view that income support payments may prevent people from re-entering the workforce, an extension of the current measures may not be a foregone conclusion.
That being said, with fiscal support still seeming necessary to nurse the Australian economy back to pre-crisis levels, it may be disastrous if the government is unable to deliver further stimulus amid a 'second wave' of coronavirus cases.
Daily Confirmed Cases of Covid-19
Source – Covid19data
AUD/USD Daily Chart
From a technical perspective, AUD/USD continues to flirt with key psychological resistance at the 0.70 level after a topside break of Descending Triangle consolidation.
With the RSI toying with an entry into overbought territory, and the Momentum indicator strengthening above its midpoint, a push to the implied measured move (0.7196) could be on the cards.
A daily close above the June high (0.7064) is needed to validate bullish potential with overbought readings on the RSI probably intensifying buying pressure.
AUD/USD daily chart created using TradingView
-- Written by Daniel Moss, Analyst for DailyFX
Follow me on Twitter @DanielGMoss
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.