The Australian Dollar has found itself enjoying a nice rally today following the publication of the Reserve Bank of Australia’s (RBA) monetary policy meeting minutes.
It is not that the minutes contained any real surprises, in fact it is the reiteration of the business as usual message from the RBA that is driving the Aussie higher. Australia’s monetary authorities have taken the opportunity to introduce a form of forward guidance, a wise move following their recent deviation from course.
The RBA had earlier this year been expected to begin a cycle of monetary tightening in order to cool inflationary aspects of the economy. Despite GDP growth sub 1% the feeling was that the Bank would seek to introduce some dampening to control prices in anticipation of a pickup in the growth rate.
A significant unemployment hiccup earlier last month caused the RBA to rethink their monetary tightening plans and today’s reaffirmation that the current 2.5% rate will remain for the foreseeable future was broadly welcomed by markets.
AUDUSD is approximately 50 points higher since the release of the RBA minutes. This places it within striking distance of 0.9130, a level that proved strong resistance when the pair attempted to move higher earlier in the month. Recall that the 0.9130 point formed the base of the Aussies dramatic fall through parity in the middle of last year.
Should this level be taken out, and it looks increasingly likely in the near term, then AUDUSD will have entered a new trading range. The top side target then becomes 0.9770, this is a long way off yet and there are ample resistance points along the way to slow the move higher.
The RBA has stated that it is pleased to see the currency depreciate from it’s historic highs of the past two years and pointed to a further weakening as a stimulus for growth. The Bank has not however stated that they would be prepared to intervene in the FX market to reduce the price of the Aussie.
Thursday night will see the publication of the RBA’s Monthly Bulletin. Today’s minutes have provided clarity on the medium term future of interest rates, Thursday’s bulletin therefore will be examined for clues to the Bank’s intention towards the FX markets.
To contact the reporter of this story: James Brennan at firstname.lastname@example.org