RBA doesn’t see Aussie as too high – AUD/USD rises

After a break in January, the Reserve Bank of Australia came back and certainly moved the currency. The interest rate remained at 2.50% as expected, but the tone changed.

Glenn Stevens and co. removed the note saying that the Australian dollar is too high. The reaction was a leap from around 0.8750 all the way up to 0.8910 before some profit taking took place.

Aussie Strength

Previously, the RBA stated that the Australian dollar is “uncomfortably high”.  RBA governor Stevens mentioned AUD/USD at 0.85 as a more desired rate. The pair reached a low of 0.8660, not too far from there, but still far from 0.80 – a value mentioned by another member, Heather  Riduot.

The strength of the Aussie made exports less competitive and depressed inflation. The recent rise in inflation shows that the value of the A$ is probably at the right place for the central bank and the economy.

Australian inflation came out stronger than expected for Q4, in both the headline and the “Trimmed Mean” (Core CPI). This certainly made a difference for the RBA which shifted from a dovish leaning statement to fully balanced. The current interest rate is likely to stay for a long time as the statement concludes:

On present indications, the most prudent course is likely to be a period of stability in interest rates

The publication of the inflation numbers had a temporary positive impact on the Aussie, as Chinese news dominated the currency once again. So, the change in tone by the RBA, even though expected, was not fully priced in.

AUD/USD action

The new high of 0.8913 serves as resistance, followed by the round number of 0.90. Support is at 0.8820, followed by 0.8730.

For more, see the AUDUSD forecast.