AUD/USD momentum accelerates after RBA interest rate decision

The AUD/USD pair jumped to the highest level since August 2018 as investors reacted to the RBA interest rate decision and strong economic data. The pair is trading at 0.7405, which is significantly higher than this year’s low of 0.5515.

Australian central bank leaves rates unchanged

In a statement today, the Reserve Bank of Australia (RBA) announced that it was leaving short-term rates unchanged at 0.25%. The bank also left the yield on the three-year Australian government bonds at 0.25%.

Most importantly, it decided to increase the size of the Term Funding Facility and extend its duration. This means that participating banks will have access to more funding by the central bank. This funding will be equivalent to 2% of the outstanding credit at a fixed rate of 0.25% for the next three years. The bank said that businesses have accessed more than $52 billion under this facility. In a statement, governor Philip Lowe said:

“In Australia, the economy is going through a very difficult period and is experiencing the biggest contraction since the 1930s. As difficult as this is, the downturn is not as severe as earlier expected and a recovery is now under way in most of Australia.”

The bank expects that the unemployment rate will rise to about 10% in 2020 and then fall to about 7% in the next two years. It also expects inflation to remain a bit subdued at between 1% and 1.5%.

The RBA interest rate decision came at a time when the coronavirus outbreak has re-emerged in Australia. The health ministry confirmed more than 70 new infections yesterday. That is still lower than the peak of 715 that were announced in August.

Australia positive data

The AUD/USD pair is also rising because of the relatively positive economic data from Australia. According to the statistics office, the country’s building approvals increased by 12% in July after falling by 4.9% in the previous month. At the same time, private house approvals rose by 8.5% after falling by 5.7% in June. Another positive data was the current account, which expanded to $17.7 billion in the second quarter from $8.4 billion in Q1.

Meanwhile, the pair reacted to the strong manufacturing PMI data from China. According to Markit, the manufacturing PMI in the country rose to 53.1 in August. That was better than the previous increase of 52.8 and the 52.6 that analysts polled by Reuters were expecting. China is an important market for Australia because of the volume of goods it buys from the country.

The AUD/USD pair also rose because of the overall weaker dollar. The dollar index has fallen by 0.35% in early trading, continuing its monthly losing streak.

AUD/USD technical outlook

The AUD/USD pair rose to an intraday high of 0.7405. On the weekly chart, the price is above the 50-week and 100-week exponential moving average. Also, the price is above the 61.8% Fibonacci retracement level while the Relative Strength Index (RSI) has risen to the highest level since April 2011. Therefore, the pair is likely to continue rising as bulls aim for the next resistance level at 0.7567, which is the 78.6% retracement level.