AUD/USD darts higher after hawkish RBA interest rate decision

AUD/USD darts higher after hawkish RBA interest rate decision
Written by:
Crispus Nyaga
December 1, 2020
  • The AUD/USD pair rose after the hawkish RBA interest rate decision.
  • The bank left interest rate, QE, and term funding facility unchanged.
  • The pair also reacted to the impressive manufacturing PMI data from China

The Australian dollar (AUD/USD) rose in early trading after the Reserve Bank of Australia (RBA) delivered its final interest rate decision. The par also reacted to the impressive manufacturing PMI data from China, Australia’s biggest market.

AUD/USD rises after RBA decision

RBA leaves interest rates intact

The Australian economy has been relatively stable recently. The number of Covid-19 cases has fallen and more companies are back to business. Further, because of Chinese demand, the country’s exports are doing well.

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It is against this backdrop that the Australia’s central bank delivered its interest rate decision today. The bank decided to leave interest rate unchanged at 0.10%. It also left its yield curve control, bond purchases, and the Term Funding Facility intact, in a bid to support the economy.

In a statement, Governor Philip Lowe said that the country was in an economic recovery as evidenced by recent data. He said that the bank expects the economy to grow by 5% next year and by 4% in the following year.

The bank also expects the rate of unemployment rate will continue rising above 7% as firms restructure. Still, it sees companies accelerating their hiring in the coming year, which will see the rate start dropping to about 6%.

On inflation, the bank expects that the Consumer Price Index (CPI) will be about 1% in 2021 and 1.5 in the following year. The statement added:

“The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range… This will require significant gains in employment and a return to a tight labour market. Given the outlook, the Board is not expecting to increase the cash rate for at least 3 years.”

The AUD/USD is also rising as investors in forex react to the strong manufacturing PMI data from China. In a report today, Caixin and Markit said that the manufacturing PMI rose from 53.6 in October to 54.9 in November. That was a better reading than the government’s manufacturing PMIthat was released yesterday.

AUD/USD technical outlook

AUD/USD techical chart

The AUD/USD pair is trading at 0.7365, which is slightly higher than the overnight’s low of 0.07340. That price was along the black ascending channel that connects the lowest levels in November. It is also at the same level as the 25-day and 15-day exponential moving averages. At this point, the outlook of the Australian dollar is neutral. A further push above the current price will mean that bulls are still in control while a move below yesterday’s low will be bearish for the pair.