The Australian Dollar continues its uptrend despite the risks of verbal interventions from the RBA. Earlier today, RBA Governor Glenn Stevens spoke at an ASIC event in Sydney. The Australian dollar was trading cautiously as investors were prepared for any dovish comments from the RBA’s Governor. However, Mr. Stevens sounded optimistic on the economic outlook for Australia in the backdrop of a slowdown from China and falling commodity prices. In his speech, the RBA Governor said that he was upbeat on the domestic economic outlook and that there was more fiscal and policy scope to respond to any downturns in the global economy.
The Australian Dollar initially spiked to session highs above 0.7613 but fell back to trading near 0.76 at the time of writing. On a year to date basis, the Australian Dollar has gained over 4.17% against the Greenback. The gains came as the RBA left interest rates unchanged at 2.0% while domestic data was showing signs of modest recovery, albeit some volatility in the unemployment rate, which initially jumped to 6.0% but settled back at 5.80% in February this year.
Looking ahead over the long term horizon, there is speculation that the Australian Premier, Malcolm Turnbull, could call for a snap election as early as July.
It is being reported that the Australian Premier threatened with calls for a snap election if the labor reform bill failed to pass. Also, later this year in August a nationwide census is expected to take place. The Australian Bureau of statistics is expected to employ close to 30,000 people to help with the census which could see a boost to the unemployment rate in the short term.
The Aussie has been a favorite among large institutional funds and some economists who continue to bet on further rate cuts from the RBA with expectations pointing to at least one rate cut further down the line this year.
With the Federal Reserve taking a dovish stance at its most recent meeting, the US Dollar Index fell to a 5 month low and has helped most of its peers to recover.
The weaker dollar has also sent the commodity prices into recovery which has seen a prolonged bearish market trend over the years. This short-term recovery in the commodity prices alongside a weaker Greenback and diminishing risks on economic slowdown in Australia is likely to keep the AUD well bid.
After clearing the 0.76 hurdle, AUDUSD will be targeting the 0.78 – 0.79 level of resistance following the break of the descending wedge on the weekly chart. However, there is a risk of a pullback where the Aussie could fall back to 0.715 marking a retest of the descending wedge’s breakout level. The currency pair remains in a downtrend within the larger time frame and the test to 0.78 – 0.79 is by no means a signal that a bottom is in place, but merely a retest to the previously established resistance level. To the downside, a close below 0.69 on a weekly basis could, however, see the bearish leg resume momentum. It was in early February that RBA’s economist Edwards was quoted as saying that $0.65 was a more comfortable level for the AUDUSD.