RBA Policy Decision: Rising AUD Could Complicate Economic Transition

Mar 07, 5:56 pm
forex australia_RBA

Earlier this morning, the Reserve Bank of Australia decided to keep the current policy unchanged, including the Cash Rate which remained at a record low at 1.5% as widely expected.

However, the statement showed a balanced tone, which kept the market uncertain regarding the next decisions, leading to a slight gain in AUD pairs, which remains positive on the day, but eased some of these early gains.

                            RBA Official Cash Rate

Statement Key Points

  • Rising Australian dollar could complicate economic transition
  • Global economic conditions have improved over recent months
  • Unchanged policy consistent with growth, inflation targets
  • Labour indicators have been mixed
  • Higher commodity prices have supported a rise in Australia's national income
  • Headline inflation expected to pick up over the course of 2017
  • House prices rising briskly in some markets
  • US rates expected to rise further, no longer expectations of further easing in other major economies
  • Australian economy continuing to transition after mining boom
  • Medium-term risks to China growth remain

RBA Chairman Philip Lowe Remarks

  • "House prices rising briskly in some markets" - this reiterating the risks already stated - to financial stability and also to household spending
  • "labour indicators have been mixed" - low wage growth and how this is impacting on spending is a key RBA concern

What Do We Know?

Today’s decision and statement show that the Reserve Bank of Australia believes that the economy is doing well and there might be no need for further easing.

They haven’t even mentioned easing in their statement today, which lead the market estimates for further easing this year to disappear, which explains why the Aussie advanced across the board.

However, this doesn’t mean that the Aussie is set to rally. The RBA is concerned about the Aussie strength as noted above, which means that the bank will be ready to act when needed.

What’s Next?

Since the economic data is mixed, traders need to keep an eye on inflation figures, the quarterly CPI ticked higher for the third quarter in a row, yet it is still far away from the bank’s 2% target.

                             Australia's Quarterly Inflation 

Further increase in inflation, would ease the chances of any easing in the coming months, while the bank will be looking for other tools to keep the Aussie under pressure.

CAPEX, GDP and many economic figures are encouraging. However, I would not be in a position to build a long position on AUD pairs yet.

AUDUSD Bearish Outlook Remains Unchanged

 

                            AUDUSD - Weekly Chart 

As noted in our previous reports, AUDUSD failed to break above its key resistance area since March of last year, which stands at 0.7720’s.

Last week the pair gave up and dropped back all the way to 0.7550’s as the technical indicators were heavily overbought.

In the meantime, a triple top formation seems to be in progress, which keeps the bearish outlook unchanged, with a possibility to decline all the way back to 0.7450’s in the coming days.

Moreover, the technical indicators are turning lower, but still heavily overbought, which supports the idea of further declines ahead.

The preferred strategy remains “selling rallies” with a tight stop above the recent February’s high around 0.7740’s.

Levels To Watch

SymbolS3S2S1PivotR1R2R3
AUDUSD0.73520.74460.75210.76150.76900.77840.7859
AUDJPY84.0184.8985.7586.6387.4988.3789.23
AUDCAD0.98280.99331.00461.01511.02641.03691.0482
AUDNZD1.04611.05331.06601.07321.08591.09311.1058
EURAUD1.35091.36071.37971.38951.40851.41831.4373
AUDCHF0.74630.75460.75990.76820.77350.78180.7871
 
Nour Eldeen Al-Hammoury

Nour Eldeen Al-Hammoury has more than ten years of experience in focusing on foreign exchange and global economic developments, as well as central bank policies and intermarket analysis (global markets relationships). Nour Eldeen is a regular on many major TV networks (several times each) such as: BBC Radio, BBC World News, Al-Jazeera, Al-Hurra TV CNBC Europe, CNBC Asia, CNBC Arabia, Al Arabiya, Bloomberg, Russia Today, Dubai TV, Sama Dubai, Skynews Arabia, Qatar TV and Future TV News.