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Australian Dollar Forecast: AUD/USD May Rise Following RBA Rate Hold

Australian Dollar Forecast: AUD/USD May Rise Following RBA Rate Hold

Thomas Westwater, Contributor

Australian Dollar, AUD/USD, RBA – Talking Points

  • Reserve Bank of Australia keeps the official cash rate at 0.10%
  • Economic recovery remains dependent on Covid-19 path
  • AUD/USD looks to challenge bullish price reaction at 2020 highs

The Reserve Bank of Australia kept its official cash rate unchanged at 0.10% on Tuesday. The rate hold was widely expected following better-than-expected economic data in recent weeks. Still, the economic outlook remains fragile and susceptible to the path of Covid-19. AUD/USD gyrated to the upside, but price action may remain volatile while traders digest the RBA's latest move.

The monetary policy statement kept the target on the 3-year Australian government bond yield unchanged at 0.10%. In line with the unchanged cash and yield target rates, no changes were announced to the RBA’s asset purchase program. For now, it appears the RBA is taking a wait-and-see approach while the path of Covid becomes clearer, particularly amid recent vaccine hopes.

AUD/USD One-Minute Chart

AUD/USD Chart

Chart created with TradingView

The RBA statement reflects recently upbeat economic data points. Still, the central scenario forecasts GDP remaining below pre-pandemic levels until the end of 2021. Citing an “uneven and drawn out” recovery, the RBA made clear that continued monetary and fiscal support is necessary.

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Indeed, monetary measures are almost certainly helping economic recovery in Australia. Today’s statement cites its recent actions to lower rates across the whole yield curve. Furthermore, year-to-date, the balance sheet has grown around A$130 billion from a combination of bond purchases and actions to support the 3-year yield target.

AUD/USD vs 3-Year Bond Yield – Daily Chart

AUDUSD vs 3-year yield

Chart created with TradingView

These actions from the RBA will likely continue until inflation and employment reach a healthy range. A sustainable inflation target within the 2-3% target range will be required for the RBA to scale back current policy support, according to today’s statement. Thus, wage growth will need to see a substantial increase from current levels. For now, according to the RBA, the cash rate will be held for at least 3 years, and the bond purchase program will remain under ongoing review.

RBA Inflation Target

RBA inflation target

Source: RBA.GOV.AU

AUD/USD is pushing higher following the RBA decision. The main technical challenge is the 2020 high at 0.7413, where price action fell short last week. A recent bullish SMA crossover may help propel the pair higher. To the downside, the 0.7300 psychological level is eyed as initial support in the event of a pullback.

AUD/USD Daily Chart

AUDUSD Chart

Chart created with TradingView

AUD/USD TRADING RESOURCES

--- Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwateron Twitter

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

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