AUD/USD darts higher after RBA commits to ultralow interest rates in Australia

AUD/USD darts higher after RBA commits to ultralow interest rates in Australia
  • The AUD/USD pair continued with the upward momentum after the RBA interest rate decision.
  • The bank left interest rates unchanged at 0.25% and committed to leave them unchanged for longer.
  • The pair also reacted to the record trade surplus reported by the bureau of statisticss.

The AUD/USD pair continued with the upward momentum as the market reacted to the RBA interest rate decision and the record current account data.

Australian dollar
AUD/USD momentum continues

AUD/USD reacts to RBA interest rate decision

The AUD/USD rallied after the RBA held its key policy rate unchanged at its current record low and hinted that the rate will remain like this for a while.

The bank left its cash rate unchanged at 0.25 per cent, in a development that was anticipated by most analysts. All analysts polled by Bloomberg and Reuters had predicted that the bank would not tweak the rate because of the current state of the economy.

The bank also made no material change to its quantitative easing program. In the statement, Governor Lowe said that the bank had purchased assets worth more than $50 billion in a bid to ensure that the yield on Australian government bonds was at around 25 basis points.

He also said that they were prepared to scale-up the asset purchases and “do whatever is necessary to ensure bond markets remain functional and to achieve the yield target for 3-year AGS.” He said:

“The Board will not increase the cash rate target until progress is being 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 several actions to cushion the Australian economy. It brought rates to a record low, started targeting the yield of the Australian government bond yield to around 0.25 per cent, and provided term funding facilities to help banks lend to businesses.

Additionally, it provided more liquidity to the financial system and established a foreign exchange swap line with the Fed.

Australia current account surplus surge

The RBA rate decision came a few hours after the Australian bureau of statistics released the balance of payments and international investment.

According to the bureau, the current account surplus rose by more than $6.6 billion to $8.39 billion because the coronavirus pandemic affected international trade. In the same quarter, the balance on goods and services surplus rose to more than $19.1 billion.

The bureau said that the net liability Australia’s International investment position (IIP) declined by $101 billion to $808 billion. At the same time, the country’s foreign debt liability increased from $3.8 billion to $1.1 trillion as the government increased its spending to cushion the economy.

Tomorrow, we will receive the final reading of the first-quarter GDP data. Analysts expect the GDP to have contracted by 0.3 per cent in the quarter.  On Thursday, we will receive the April retail sales data. Analysts polled by Bloomberg expect the retail sales to have declined by 17.9% after increasing by 8.5 per cent in March.

AUD/USD technical analysis

AUD/USD

The AUD/USD pair is trading at 0.6790, which is the highest it has been since January 27. On the daily chart, the price is above the short and medium-term MAs and is slightly above the 78.6% retracement. Also, the Relative Strength Index (RSI) has continued to rise and is now above the overbought level of 70. The pair will likely continue soaring as bulls target the psychological level of 0.7000.

By Crispus Nyaga
Crispus Nyaga is a finance analyst and trader with more than 7 years industry experience. He's contributed to some of the leading financial brands in the world including Seeking Alpha, MarketWatch, Forbes, and Investing.com. Crispus has an excellent understanding of global macroeconomic and geopolitical issues, is a big fan of golf, and lives in Nairobi with his wife, son, and nephew.
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