The RBA’s monetary policy meeting today saw the key rates left unchanged at 2.0%. The RBA cut interest rates in May 2015 and has left rates unchanged since then. However, the focus of today’s monetary policy meeting was the recent appreciation in the exchange rate of the Australian dollar leading many to speculate on the tone of the statement.
As widely expected, RBA’s statement did carry a reference to the exchange rate of the AUD, but the tone was far less dovish than expected.
On the domestic front, the RBA noted that the economy was continuing to rebalance after the mining investment boom and acknowledged the pickup in GDP in 2015 alongside a pickup in the pace of lending to businesses. The RBA said that inflation remained low and that recent data suggested that growth in the labor costs were high. In this aspect, the RBA expects Australian inflation to remain lower over the next two years. Yesterday the MI inflation gauge which is a leading indicator on inflation expectations remained flat at 0.0% following a dip of -0.20% previously.
The RBA said that it would maintain an accommodative monetary policy as the low-interest rates were supporting demand.
Despite the recent pickup in commodity prices, the RBA said that the Australian dollar’s appreciation could undermine the adjustment currently underway in the country.
On forward guidance, the RBA said that it would assess new information which would allow the RBA to assess the outlook for inflation and, more importantly, signs of a continued improvement in the labor market growth.
Besides the RBA’s meeting other economic data from Australia this morning included the trade balance data for February, which showed that the economy’s deficit increased to 3.41 billion, up from January’s revised 3.16 billion, an increase of 8.0% from January.
AUDUSD – Technical Outlook
AUDUSD has been posting a steady uptrend, but the current price action shows that it is time for a correction. This is based on the weekly chart which shows a hidden bearish divergence with the Stochastics oscillator posting a higher high against price’s lower high. Support is identified at 0.736 – 0.74 while resistance comes in at 0.782 on the weekly chart.
On the daily chart, AUDUSD has been consolidating into a rising wedge pattern with a top formed above 0.768. A breakout from the rising wedge will confirm a move to the downside for 0.74 – 0.736 region, showing confluence with the weekly divergence noted above.
Despite the risks of the RBA talking down the AUD, the Technical charts point to a continued uptrend in the medium term. The current dip to 0.74 support zone could see a good buying opportunity into the long term trend which could see AUDUSD rally towards 0.78 in the next few months.