AUD/USD little changed after RBA rate decision as a $75b panic looms

AUD/USD little changed after RBA rate decision as a $75b panic looms
Written by:
Crispus Nyaga
7th July, 05:23
  • The AUD/USD pair was little changed after the RBA interest rate decision.
  • The RBA left interest rate unchanged and committed to continue supporting the economy.
  • The biggest challenge is that the number of coronavirus cases in Australia is rising.
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The AUD/USD pair was little changed as traders reflected on the Reserve Bank of Australia (RBA) interest rate decision. The pair is trading at 0.6970, which is slightly below the day’s high of 0.7000.

AUD/USD reacts to RBA interest rate decision

RBA interest rate decision

The Australian central bank left interest rate unchanged at 0.25%, which was in line with what most analysts were expecting. It also left its yield control intact, meaning that the three-year bonds are yielding at 0.25%. It has done this by acquiring bonds worth about $50 billion.

In the statement, the RBA said that it has not acquired bonds for a while but committed to do so when needed. It also committed to leave the target of the yield until the country makes progress on employment and inflation.

Governor Philip Lowe also said that the bank was continuing to support the economy. For example, he cited the Term Funding Facility that is available to banks. These institutions have drawn about $15 billion of these funds.

He said that this support was necessary since the economy is going through its worst slowdown since the 1930s. For example, more than 800,000 people have lost their jobs with many others retaining their jobs because of government support. He said:

“The Board is committed to do what it can to support jobs, incomes and businesses and to make sure that Australia is well placed for the recovery. Its actions are keeping funding costs low and supporting the supply of credit to households and businesses. This accommodative approach will be maintained as long as it is required.”

The RBA interest rate decision came at a time when data from Australia has been relatively positive. Last week, data from Markit showed that the manufacturing PMIrose to above 50. Another data showed that Australian exports rose sharply in June while retail sales rose by almost 17%. Further, credit and debit card spending data rose by 12% in June.

Another challenge for the RBA is that home defaults could increase in September when the JobKeeper payments and banks’ six month mortgage holidays end. This puts at least $75 billion of home loans at risk.

However, the biggest risk for Australia is that the number of coronavirus cases in some starts is rising. In Melbourne and Victoria, the number of cases rose by 191. As a result, there is a possibility that the these states will restart their lockdowns.

AUD/USD technical analysis

AUD/USD
AUD/USD technical analysis

The AUD/USD pair is trading at 0.6968, which is slightly higher than last week’s low of 0.6780. On the daily chart, the price is above the 50-day and 100-day exponential moving averages. The RSI has moved close to the overbought level of 70. The price is also above the ascending trend line shown in black. This line connects the lowest levels on April 3, May 18, and June 30. This means that the price will continue rising as bulls target the next resistance at 0.7063.

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