The RBA left the interest rate unchanged at 2.50% as widely expected. In its statement, it mentioned that the Australian dollar is at a high level, and could fall further.
Well, not so fast: AUD/USD reacted to the rate statement with a climb of 40 pips, from 0.8980 to 0.9020. The RBA did not make hints on upcoming rate cuts, and this was a relief from pressure on the A$:
The Reserve Bank of Australia also noted that the unemployment rate has advanced and that the economy is adjusting to lower levels of mining investment. Future monetary policy will be adjusted to “foster sustainable growth”.
All the statements above sound somewhat dovish, but the central bank already made more dovish statements in the past: statements about “further scope for easing”. These served as hints for rate cuts, and their absence tells markets that a rate cut is currently not on the cards.
Here is the paragraph relating to the exchange rate:
The Australian dollar has depreciated by around 15 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 Australian dollar began the week with a rise from the lows of 0.89 to above 0.90, riding on positive news from Australia, China and Syria. Australian building approval jumped much more than expected.
However, it found it hard to hold onto the 0.90 level, and traded just below this line before the announcement.
Further levels above are 0.9040 and 0.9180. For more, see the AUDUSD forecast.