AUD/USD retreats as RBA says loose monetary policy to remain

The AUD/USD pair fell slightly in early trading as investors reacted to the latest minutes by the Australian central bank. The Australian dollar also fell by 0.15% and 0.10%against the euro and the New Zealand dollar.

Australian central bank minutes

The Reserve Bank of Australia released the minutes of the meeting held early this month today. In the meeting, the members voted to leave interest rates unchanged at 0.25 per cent. This was mostly because the bank had already intervened in the market several times in March.

In the minutes, the bank said that the national and international economy had changed significantly since the previous meeting because of the pandemic. According to the minutes:

The Board confirmed that the target for three-year yields would be maintained until progress was made towards the Bank’s goals of full employment and the inflation target, and that it would be appropriate to remove the yield target before the cash rate itself was raised. The Board would not increase the cash rate target until progress is made towards full employment and it is confident that inflation will be sustainably within the 2–3 per cent target band.

The RBA has taken a prominent role to help stabilize the Australian economy. In March, the bank lowered interest rates two times in March. This brought interest rates to 0.25%, which is its all-time low. The goal of lowering interest rates is usually to make it easy for companies and individuals to borrow money. It also encourages spending by making it unfavourable to save.

The central bank also provided a Term Funding Facility (TFF) for banks worth about A$90 billion. The TFF has a fixed term rate of 3 years and an interest rate of 0.25%. As with lowering rates, this facility makes it easy for companies to access cheap financing.

Most importantly, the central bank introduced a new policy to target the 3-year government bond of about 0.25%. To do this, the bank is buying billions of dollars-worth of government bonds in form of quantitative easing. This was the first QE the bank has ever implemented.

Other actions by the RBA have been to establish a swap line with the Federal Reserve, provide liquidity to the bond market, and to ensure an ample supply of cash in the economy. These measures have helped the Australian dollar rise by more than 10% against the dollar in the past few weeks.

Positive signs emerging

As with all countries, Australia has been hit hard by the current crisis. The country, which has gone for 28 years without a recession, is expected to shrink this year. The rate of unemployment is expected to rise while more companies are expected to go out of business. Worse, the housing sector, which was in trouble before the crisis will be hit.

Still, there are some positive signs coming from the country. First, the country has almost won the war against the disease. According to Worldometer, the number of active coronavirus cases has dropped from 4935 on April 4 to a low of 2,300. At the same time, the number of new cases has dropped from 528 in March 28 to just 26. As a result, the government has announced plans to reopen the economy in the next few days.

Another positive sign is from China, which is Australia’s biggest trading partner. The country has shown some signs of recovery. A few weeks ago, data from the country showed that manufacturing activity improved in March. Another data showed that the country improved its exports and imports. These are positive signs for Australia because of how much it is dependent on China.

AUD/USD technical forecast

On the three-hour chart, we see that the AUD/USD pair has been on an upward trend since March 19, when it was trading at 0.5510. As the pair rose, it created an equidistant channel, which is shown in green. The decline today made the pair test the lower line of this channel. Additionally, the price is along the 50-day EMA and above the 100-day EMA. Therefore, the likely case is where the pair moves upwards today and tries to test the upper side of the channel. Alternatively, the pair may start a new downward trend if it moves below the 0.6300 support.