American Hawks Tempered by Aussie Doves
As the Fed attempts to shift from a dovish to a hawkish policy stance, the RBA maintains its dovish bias and continues to talk down the Australian dollar.
Today's RBA meeting confirmed Australian interest rates would remain unchanged at 2.75% as largely expected. In answer to our question postulated in our earlier post 'Can today's pivotal RBA decision rescue the Aussie?, the RBA answered with a strong 'No'. The dovish RBA bias was further confirmed via the RBA statement published alongside the rate decision announcement. The RBA made several dovish comments that underlined the recent AUD weakness and maintained expectataions of further rate cuts further down the track. |
| Source: RBA.gov.au |
The statement highlights
"Commodity prices have declined further but, overall, remain at high levels by historical standards"
"Inflation has moderated over recent months in a number of countries"
"Inflation has been consistent with the medium-term target and is expected to remain so over the next one to two years, notwithstanding the effects of the recent depreciation of the exchange rate"
"The easing in monetary policy over the past 18 months has supported interest-sensitive spending and asset values and further effects can be expected over time"
"The Australian dollar has depreciated by around 10 per cent since early April, although it remains at a high level. It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy"
"The Board also judged that the inflation outlook, as currently assessed, may provide some scope for further easing, should that be required to support demand"
The RBA decision pushed AUD/USD to briefly test 0.9234 on the upside but the pair soon found fresh downward momentum - falling to fresh daily lows and now poised to attempt a break of the 0.9110 level.
Verdict
 |
1 minute candlestick chart showing AUD/USD decline after RBA comments  |
The RBA did not deviate away from what the markets expected. Despite being in line with expectations, the sharply negative AUD reaction indicates the prevailing net AUD short positioning amongst market participants and even more importantly, reinforces expectations for further weakness in AUD pairs alongside falling interest rates. Furthermore, the RBA's policy stance has now decoupled from the Fed's which adds a further yield differential motive to risk-averse USD flows seen since June 19th.
0 Response to "American Hawks Tempered by Aussie Doves"
Post a Comment