RBA leaves cash rate unchanged at 2.25%

The RBA, in its monthly monetary policy meeting decided to leave interest rates unchanged at 2.25%. A move that was a very close call, with the markets clearly divided on the outcome as technically, the Australian Dollar was heavily oversold in the previous week in expectations of a rate cut. However, as mentioned in our RBA monetary policy preview, the economic data did not warrant any rate cut at this meeting.

The Aussie immediately bounced back after hitting fresh lows of 0.7533 earlier last week. The AUDUSD currency pair rallied towards 0.77 at the time of writing.

In its monetary policy statement, the RBA noted that domestically, growth in Australia continued to grow at a below trend pace and that the effect of falling Oil prices would put downward pressure on the CPI in the near term. The RBA however expects inflation to continue within the Central bank’s target band in the near future.

In regards to the exchange rate, the RBA expects or rather prefers to see the Aussie decline not just against the Greenback but also a basket of currencies while expecting the Aussie to weaken even further against the US Dollar.

In terms of forward guidance, the RBA in its monetary policy statement noted that it felt appropriate to leave interest rates steady for the “time being” but expects a further easing in monetary policy in the near future.

The RBA’s monetary policy statement did not steer much from its previous month’s statement but markets could potentially expect to see another rate cut from the RBA down the line.

Earlier in the day, ahead of the RBA’s interest rate decision, retail sales data was released, which managed to beat estimates rising 0.7%, with previous month’s data revised higher to 0.5%, in what is being seen as an effect of the February interest rate cuts.

Australian Dollar Technical Analysis

AUDUSD: The intraday chart shows that the recent rally has been capped near the median line and also having broken the longer term trend line which has been in play since Mid-March.

We can expect to see a dip back towards 0.766 – 0.763 levels, following which, the AUDUSD could potentially look to make more gains in the near term with upside rally likely to retest the broken support levels at 0.78 and 0.77 respectively.

Figure 1: AUDUSD - H1 Chart, 07/04

 

AUDNZD: The Aussie also managed to rally from near parity, after hitting new lows to 1.0018 levels. Price action shows the AUDNZD is back inside the falling price channel. It is likely that AUDNZD could possibly test 1.02345 before setting its future course of direction. An upside breakout from the falling price channel could potentially turn AUDNZD bullish in the near term and pave way for gains to 1.032 levels.

Overall, despite the RBA leaving interest rates unchanged at this meeting, the general sentiment weighed down by falling commodity prices and lack of growth in the Australian economy warrants a potential rate cut from the RBA sooner than later. In this aspect, the Aussie dollar continues to remain bearish in its outlook.

Figure 2: AUDNZD H4 07/04