The Reserve Bank of Australia decided to keep the current policy unchanged in its meeting earlier today at 1.5% as widely expected, despite the fact that the Labour Market in Australia is showing clear signs of slowing down over the past three months. However, the Aussie continued to decline back and slipped below 0.7450. In today’s article, we will review the bank decision, statement and explain the reason behind today’s impact.
Cash Rate: Interest Rate charged on overnight loans between financial intermediaries. The rate decision is usually priced into the market, so it tends to be overshadowed by the RBA Rate Statement, which is focused on the future.
Why Trades Should Follow The Decision
Short-term interest rates are the paramount factor in currency valuation – traders look at most other indicators merely to predict how rates will change in the future.
The RBA Statement is among the primary tools the RBA Reserve Bank Board uses to communicate with investors about monetary policy. It contains the outcome of their decision on interest rates and commentary about the economic conditions that influenced their decision. Most importantly, it discusses the economic outlook and offers clues on the outcome of future decisions.
Looking in To Weak Data
The Reserve Bank of Australia noted that they are looking through the recent weak data, especially those from the housing market, which could be seen as a hint for future actions. However, the central bank, of course, would like to wait and see future data before taking the right action. Yet, we hope that its not too late to do so.
The Aussie reacted negatively to today’s decision as the Reserve Bank of Australia kept the sentence of “Stronger AUD could complicate economic transition”, which means that the Bank is still unsatisfied with the current levels of the Aussie. AUDUSD took a hit prior to the decision and continued its decline all the way back to 0.7430’s until this report is released.
The Aussie broke through its medium term uptrend line a few weeks ago, which turned the bullish outlook to bearish again. Moreover, the technical indicators are still bearish on most time frames, especially that the daily RSI is still below the Mid-50 barrier.
In the meantime, there is still a possibility for a short-term retracement to the upside. However, this is likely to remain limited below yesterday’s highs. On the downside view, today’s lows should be watched very carefully, as a breakthrough that support would clear the way for further declines ahead.
Levels To Watch
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