The Reserve Bank of Australia kept rates at 4.1% for third straight time on Tuesday, in order to assess the impact of its cumulative tightening, taking into account the economic slowdown. It was helped to its decision by easing inflation and signs of cooling in the employment conditions.
At the same time, the greenback attracted flows from cautious market sentiment, but also from higher-for-longer prospects by the Fed. The latest weak employment report may have US bolstered market hopes for a peak in rates, but inflation ticked up again in July and the Fed has kept the door open to more hikes.
AUD/USD slumped to new 2023 lows as a result and is now exposed to 0.6271, although fresh impetus would be needed for a test that would bring 0.6169 in the spotlight.
On the other hand, the RBA kept more tightening on the table, as inflation remains far from the 2-3% target and the labor market tight. The Australian economy is in a period of "below-trend growth" according to the central bank, expecting this to continue for "a while", but today's data offered reason for optimism. GDP grew by 0.4% q/q in the second quarter (from 0.2 %prior) and even though it continued to slide on a yearly basis, the 2.1% y/y print beat forecasts.
These data along with greenback easing help AUD/USD find some reprieve today. Although further rebound would be reasonable, it does not inspire confidence for sustained recovery at this stage and the upside looks uninhabitable. Daily closes above the EMA200 (at around 0.6510) would be required for the bearish bias to pause, but that looks like a toll order.
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.