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RBA sat on its hands

Published March 20, 2019

By George Hopkinson

Once again, the AUD/USD pair is trading in a relatively tight range and is struggling to determine its next short-term direction ahead of this week’s important events. The much-anticipated RBA minutes didn’t offer any fresh clues to interest rate direction and failed to trigger any market reaction. In the statement, the RBA reiterated that the board agreed there isn’t a strong case for a move in policy rate near term and there were significant uncertainties on the economic outlook. Meanwhile, the house price index in the fourth quarter declined by 5.1% in Australia on a yearly basis to miss the market expectation of -0.4%.

On the technical side, the 2-year spread between the US and Australian rates is at levels not seen since 1997. This implies the AUD/USD should be below 0.7000 (per chart below); while interest rate futures pricing has a 25basis point rate cut by the RBA priced in by years end. Could the age-old adage of “Up by the stairs and down by the elevator” ring true for the AUD?

Support for AUD/USD sits at 0.7050 with resistance at 0.7150.

Later in the week, the labour market data from Australia will be the next major release to determine the AUD’s market valuation.

Chart Source: Reuters