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](https://a.c-dn.net/b/3mbgxq/Australian-Dollar-Forecast-AUDUSD-May-Rise-Following-RBA-Rate-Hold_body_Graphical_user_interface.png)
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](https://a.c-dn.net/b/0uXwYS/Australian-Dollar-Forecast-AUDUSD-May-Rise-Following-RBA-Rate-Hold_body_Chart.png)
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](https://a.c-dn.net/b/3uQfoR/Australian-Dollar-Forecast-AUDUSD-May-Rise-Following-RBA-Rate-Hold_body_Graphical_user_interface_1.png)
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](https://a.c-dn.net/b/3aX3ah/Australian-Dollar-Forecast-AUDUSD-May-Rise-Following-RBA-Rate-Hold_body_A_picture_containing_diagramDescription_automatically_generated.png)
Chart created with TradingView
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--- Written by Thomas Westwater, Analyst for DailyFX.com
To contact Thomas, use the comments section below or @FxWestwater on Twitter