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AUDUSD Jumps from Critical Support as the RBA Keep Rates on Hold. Can It Stay Above 0.6700?

RBA Cuts Rate by 25 bps, AUDUSD Hit Monthly Lows
RBA Cuts Rate by 25 bps, AUDUSD Hit Monthly Lows

AUDUSD is up over 0.40% in the past hour after the RBA announced that it would keep its interest rates on hold at 0.75%. While this was widely expected by market participants, the currency pair still had a bullish reaction to the news. Now the question is, are there enough buyers to sustain the rally in AUDUSD above the 0.6700 handle?

Why the RBA Kept Rates Steady

According to a statement from the central bank, the decision to keep rates steady was based on some underlying developments in the economy. Following the uptick in CPI form 4.0% in December to 4.7% this month, the RBA remarked that inflation will hover around its 2% target this year and in 2021. The central bank also sees that consumption will continue to improve after retail sales for November rose by 0.9% from 0.2% in October. It’s also worth noting that the unemployment rate in the country ticked lower to 5.1% in December from 5.3% the previous month. According to the RBA, it sees the joblessness to stay at this level for the foreseeable future.

Why the RBA Could Cut Rates Soon

Despite this optimism, the central bank warned that it will ease monetary policy further if the economy shows signs of a slowdown. Its statement highlighted the risk posed by the ongoing bushfires in Australia as well as the threat of the coronavirus to the economy. The RBA did not provide an estimate as to how much they think these developments could weigh down growth as it is too early. Given this, most market participants think that it could only be a matter of time when the central bank cuts rates. It would seem that the RBA is saving its ammunition for when economic activity slows down and could explain why AUDUSD is struggling to hold on to its gains.

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AUDUSD Outlook

On the daily time frame, we can see that AUDUSD found enough bids just below the 0.6700 handle. It jumped 40 pips immediately following the RBA’s rate decision.

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The hourly chart also shows that the currency pair had an upside break out of the rectangle. Resistance at the short-term trend line (from connecting the highs of January 29 and February 3) has also been broken. This suggests that buyers could push AUDUSD higher.A look at the 4-hour time frame shows that the currency pair could find resistance around the falling trend line (from connecting the highs of January 16 and January 23) around 0.6770. This price also coincides with the 38.2% Fib level when you draw from the high of January 23 to today’s low.However, be wary of buying if AUDUSD fails to close above the 100 SMA on the hourly chart. It could suggest that there may still be sellers in the market. The currency pair could easily give up its gains and fall to today’s lows around 0.6678.More content