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AUD/USD extends rally beyond 0.7130 despite RBA’s dovish shift

  • AUD/USD is rising sharply for the second straight day.
  • RBA lowered its policy rate to 0.1% and expanded QE by AUD100 billion.
  • Greenback stays under strong selling pressure ahead of US presidential election.

After closing the first day of the week in the positive territory, the AUD/USD pair edged lower with the inial reaction to the Reserve Bank of Australia’s (RBA) policy announcements. However, the risk-on market environment and the broad-based selling pressure surrounding the greenback provided a boost to AUD/USD during the European trading hours and lifted it to a daily high of 0.7139. As of writing, the pair was up 1.11% on the day at 0.7131.

RBA delivers more than expected, AUD ignores

As expected, the RBA lowered its policy rate to 0.1% from 0.25% following its November policy meeting. The bank also decided to expand its quantitative easing (QE) program by AUD100 billion. Commenting on the policy outlook, RBA Governor Phillip Lowe said that they have done all they can on rates and added that they will shift their focus to QE in case more easing is needed.

Commenting on the RBA’s policy statement, “whether the Bank delivers more stimulus will depend on the unemployment outlook and market functioning over the following six months,” said TD Securities analysts. “If the RBA needs to do more, we believe it has more room to do so.”

Despite the RBA’s dovish tone, the risk-sensitive AUD capitalized on the upbeat market mood and started to build on Monday’s gains. At the moment, the S&P 500 futures are up 1.1% on the day, suggesting that Wall Street’s main indexes are likely to open sharply higher on Tuesday. In the meantime, the US Dollar Index is down nearly 0.5% on the day at 93.60.

Nevertheless, it’s difficult to say if risk flows will continue to dominate the financial markets later in the day as investors are likely to step to the sidelines while getting ready for the first election results to hit the newswires in the Asian session.

Technical levels to watch for

 

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