- The AUD/USD is recovered while the Australian Reserve Bank surprises markets with a decision to maintain the interest rate.
- Commercial uncertainty limits the fortress of the US dollar, supporting the Australian dollar.
- The AUD/USD points to the resistance of 0.6550 while the golden cross supports the widest upward trend.
The Australian dollar (AUD) is recovering against the US dollar (USD) on Tuesday, after the decision of the Australian Reserve Bank (RBA) to maintain its main interest rate at 3.85%.
After a 1% drop on Monday, the announcement of the Australian Central Bank provided an impulse to the AUD/USD, which is currently negotiated about 0.6530 at the time of writing.
According to a Reuters survey published on Friday, 31 of 37 economists anticipated that the Central Bank would announce a third consecutive reduction of 25 basic points at the rate on Tuesday.
Faced with these widely anticipated and largely incorporated expectations, the markets continued to tell US employment data published last Thursday.
Until now this year, a healthy labor market has allowed the Federal Reserve (FED) to maintain rates between 4.25% and 4.50%.
The most recent NFP showed a healthy American labor market, which decreased bets on a reduction of rates by the Fed in July.
This greater demand for US yields, positive for performance differentials between Australia and the US, continued.
However, a surprise hard line movement on the part of the RBA served as a bullish trigger for the aud/USD on Tuesday.
The AUD/USD points to the resistance of 0.6550 while the golden cross supports the widest bullish trend
The AUD/USD is currently directed towards the fibonacci setback of 61.8% of the mass sale from September to April, providing resistance around 0.6550. Prices remain within an ascending wedge in a daily framework.
The rejection around the upper part of the wedge and below the psychological barrier of 0.6600 increased the expectations of a bearish reversion last week. However, the positive impulse remains supported by the exponential mobile socks (EMA) of 50 and 200 days, currently located at 0.6475 and 0.6436, respectively.
These mobile socks have formed a golden crossing (a bullish technical pattern that is formed when the 50 -day EMA rises above the 200 -day EMA), indicating a broader upward trend.
Aud/USD Daily Graph
A 54 reading in the relative force index (RSI) suggests a neutral impulse with a slight positive inclination.
A break and maintenance above EMAS in a sustained manner and a proof of the round number of 0.6600 could potentially form a target towards the maximum of November at 0.6689 and the 78.6% setback in 0.6722.
However, a break below the wedge support around 0.6372 would be an important change in the market structure, exposing prices to another fall to the 0.6200 area.
RBA – Frequently Questions
The Bank of the Australian Reserve (RBA) sets interest rates and manages Australia’s monetary policy. The decisions are made by a advice of governors in 11 meetings per year and in the necessary emergency meetings that are necessary. The main mandate of the RBA is to maintain price stability, which means an inflation rate of 2%-3%, but also “… contribute to the stability of currency, full employment and economic prosperity and the well-being of the Australian people.” Its main tool to achieve this is to raise or lower interest rates. Relatively high interest rates will strengthen the Australian dollar (AUD) and vice versa. Other RBA tools are the quantitative relaxation and hardening of monetary policy.
Although traditionally it has always been considered that inflation is a negative factor for currencies, since it reduces the value of money in general, the truth is that in modern times the opposite has happened with the relaxation of cross -border capital controls. Moderately high inflation now tends to take the central banks to raise their interest rates, which in turn has the effect of attracting more capital of world investors who are looking for a lucrative place to keep their money. This increases the demand for the local currency, which in the case of Australia is the Australian dollar.
Macroeconomic data calibrates the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in safe and growing economies than in precarious and contraction economies. A greater influx of capital increases aggregate demand and the value of the national currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment and surveys about consumer feeling can influence the AUD. A strong economy can encourage the Bank of the Australian Reserve to raise interest rates, also supporting the Aud.
The quantitative easing (QE) is a tool used in extreme situations in which to lower interest rates is not enough to restore credit flow in the economy. The QE is the process by which the Bank of the Australian Reserve (RBA) prints Australian dollars (AUD) in order to buy assets – normally State or business bonds – to financial institutions, thus providing them with the liquidity they need so much. The one usually translates into a weaker audience.
The quantitative hardening (QT) is the reverse of the QE. It is carried out after the QE, when economic recovery is underway and inflation begins to increase. While in the QE the Bank of the Australian Reserve (RBA) buys state and business bonds from financial institutions to provide liquidity, in QT the RBA stops buying more active and stops reinvesting the main one that expires of the bonds it already has. It would be positive (or bullish) for the Australian dollar.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
