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Australian Dollar Forecast: AUD/USD Gyrates Post-RBA. Where to Next?

Australian Dollar Forecast: AUD/USD Gyrates Post-RBA. Where to Next?

Thomas Westwater, Analyst

Reserve Bank of Australia, Australian Dollar, AUD/USD Talking Points

  • Reserve Bank of Australia holds rates steady at 0.1%, as expected
  • Bond purchases and term funding facility remain unchanged
  • AUD/USD ticked marginally higher after the report crossed the wires

The Reserve Bank of Australia (RBA) kept its cash rate unchanged at 0.1% along with its 3-year bond yield target, as widely expected. Although economic conditions have picked up in Australia since the last interest rate decision, RBA policymakers appear to be holding firm to accommodative monetary conditions. The Australian Dollar moved marginally higher against the Greenback after the announcement crossed the wires but AUD/USD remained slightly weaker on the day.

Bond purchases will soon begin the second A$100 billion round, with the initial term purchase program nearly complete. Moreover, the RBA is mulling over a decision to keep the April 2024 bond target or shift to the following maturity. The policy statement links these decisions to the likelihood of increasing its goals of employment and inflation.

AUD/USD 3-Min Chart

audusd post-rba

Chart created with TradingView

In line with other major central banks, the RBA’s dovish stance appears likely to continue for some time. RBA Governor Philip Lowe has tamed market expectations in recent months that the bank may tighten policy relatively soon. That posture appears to be firm despite recent upbeat economic data and some easing in bond market volatility. Covid-19 and its global economic impact remains the most significant risk to the outlook. The housing sector continues to see strength, bolstered by first-time homebuyers encouraged by low borrowing costs.

audusd vs home prices

Domestically, Australia’s Covid situation has been somewhat less dramatic relative to other major economies. New Zealand Prime Minister Jacinda Ardern announced a quarantine-free travel bubble between Australia and New Zealand on Tuesday. The corridor between the two neighboring nations is set to start April 18. The Australian economy saw an Easter holiday with zero locally sourced Covid infections.

While subject to restrictions, such as travel-linked virus transmission, the move signals a reopening between the two commodity-driven economies. The travel avenue may help spur some additional economic activity in the Australian economy. Australia’s labor market has reached pre-pandemic levels when viewing total job holders.

The RBA policy statement highlights the unemployment rate, which dropped to 5.8% in February. Still, the expiration of the country’s Jobseeker program will likely cool the labor market moving forward. Moreover, wage and price pressures continue to lag, according to the policy statement, and will continue to do so “for some years.” That said, the cash rate will be held at 0.10% until the 2-3% target range is achieved for a sustained period per the RBA statement.

aud vs employment change

AUD/USD Technical Outlook

AUD/USD moved higher to start the week but gave away a portion of those gains heading into the RBA statement. The neckline of a Head and Shoulders pattern has held, with prices appearing to find support at the level through the last several weeks. Currently, prices are gyrating around the 100-day Simple Moving Average (SMA).

The currency pair’s MACD line looks close to making a cross above its signal line, which may help guide prices higher in the coming days if completed. The relative Strength Index (RSI) is trending near its midpoint, just under the 50 mark. Overall, the Australian Dollar will need to climb above a trendline from the February swing high to reestablish a bullish footing on a technical basis.

AUD/USD Daily Chart

Australian Dollar Forecast: AUD/USD Gyrates Post-RBA. Where to Next?

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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