AUD/USD turns higher after hawkish RBA monetary policy minutes

The AUD/USD pair is up slightly as investors react to the minutes by the Reserve Bank of Australia (RBA). It is trading at 0.7218, which is higher than yesterday’s low of 0.7110.

RBA minutes review

The Australian central bank held its monthly monetary policy meeting on 4^th August. In the meeting, the bank decided to leave interest rates unchanged at 0.25% as most analysts were expecting.

In the minutes, the bank said that the Australian economy was expected to contract by about 7% in the first half of the year. While this contraction was bad, it was better than what analysts at the bank were expecting a few months earlier.

In making their decisions, they considered three baseline scenarios. First, they expect that the economy will contract by about 6% in 2020 and bounce back by 5% in 2021 and 4% in 2022. This will happen if the lockdowns in Victoria were not materially extended.

Second, there was the upside scenario that embodied a stronger recovery of the Australian economy. Finally, they considered a situation where there was a globally widespread resurgence of the pandemic.

In the baseline scenario, the bank expects that the unemployment rate in Australia will rise to about 10% in the fourth quarter. That will be a significant increase from just over 5% before the pandemic. On the other hand, in the downside scenario, they see the unemployment rate rising to about 10.5% and then drop gradually. Also, they expect the inflation will remain below 2% in the next few years.

In total, the members committed to maintain the current expansionary policy. They left interest rates and the target on the 3-year Australian government bonds unchanged at 0.25%. Also, they also maintained the Term Funding Facility to support businesses. The minutes said:

“The Board determined that it 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.”

AUD/USD technical forecast

The daily chart below shows that the AUD/USD pair has been in an upward trend since bottoming at 0.5510 in March. Since then, the pair has gained by more than 26%, becoming the best-performing pair in the developed world.

This rise was mostly because of how Australia handled the coronavirus pandemic and the swift recovery in China, the country’s biggest trading partner. Also, a weaker US dollarcontributed to the gain.

The current price is above the 50-day and 100-day exponential moving averages. It is also slightly above the important resistance at 0.7026. Therefore, the AUD/USD pair is likely to continue rising as bulls aim for the next resistance level at 0.7300.

On the flip side, a move below 0.7026 will invalidate the upward projection because it will send a signal that there are still sellers in the market.