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RBA holds rates steady at 2.0%

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The Reserve Bank of Australia, at its monetary policy meeting, held interest rates steady at 2.0%. In the monetary policy statement, RBA Governor Glenn Stevens noted that global economy continued to grow but at a slow pace than expected and that the economic conditions continue to deteriorate for emerging market economies as China’s growth rate continued to moderate. Falling Oil prices reflected slower growth in demand amid falling commodity prices.

On the domestic front, Governor Stevens was upbeat noting that CPI in Australia increased 1.70% in 2015 which was low and below the 2.0% target rate. The RBA left rates unchanged for the fact that economic conditions domestically continued to grow reasonably, warranting stable interest rates while noting that further policy decisions would be taken based on incoming economic data. On exchange rate, the RBA was neutral noting that the Australian Dollar continues to adjust to evolving economic outlook.

The RBA’s statement was rather mixed as the markets expected to see the RBA take a more hawkish stance. However in light of weak growth from China, the RBA’s monetary policy was understood to have been neutral with hints of dovishness. The AUD initially rallied on the release but soon gave back its gains. The RBA is expected to publish new economic forecasts later this week on Friday, which is more likely to give a better picture of what the Central Bank expects both in terms of the inflation rate and economic growth. As of economic data published for December 2015, Australia’s unemployment rate stood at 5.80% while inflation was recorded at 1.70%.

The Australian Dollar gained last week on a surprise rate cut from the Bank of Japan, posting a two-week high, closing at 0.7082. The AUDUSD has been trading sideways within 0.74 and 0.68 levels for nearly the past 21-weeks.

Meanwhile, Australia’s neighbor, New Zealand continues to remain dovish with the RBNZ’s meeting last month signaling that further rate cuts were necessary, in light of weaker than expected inflation and the need for further depreciation in the NZD’s exchange rate.

AUDUSD – Technical Outlook

AUDUSD is currently down -0.47% for the day after posting a session high to 0.7129 previously. The 4-hour chart shows price action forming an inverse head and shoulders pattern with the neckline resistance at 0.704 – 0.7008 being broken. Prices briefly rallied to 0.7133 before retreating lower. The median line plotted on the chart shows prices breaking out lower pointing to a retest of the neckline resistance to establish support. A successful test of the neckline could push AUDUSD to the inverse head and shoulder measured target to 0.719 – 0.7165.

AUDUSD – Technical Outlook, Inverse Head and Shoulders Pattern, 4H chart
AUDUSD – Technical Outlook, Inverse Head and Shoulders Pattern, 4H chart
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