Earlier this morning, AUDUSD traded higher to its Asian session high at 0.6744 following RBA Governor Philip Lowe.Yesterday, the Reserve Bank of Australia held rates steady at 0.75%. Most market participants had expected the central bank to stand pat following its rate cuts last year. Lowe’s speech today provided financial markets with more insight to the bank’s recent and future monetary policy decisions.
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Reasons Why the RBA Did Not Cut Rates
According to Lowe, the recent uptick in inflation and employment made policymakers confident that the economy is doing well enough not to warrant further easing. Remember that CPI rose from 4.0% in December and 4.7% in January. Meanwhile, the unemployment rate dropped to 5.1% in December from 5.3% in November.
He remarked that the ongoing bushfires in Australia could lead to a 0.2% drop in GDP. However, the RBA does not see it having a significant effect on Australia’s 2020 growth. While acknowledging that a rate cut could help counter the adverse effect of bushfires, they were not too keen on cutting yet because of the risk it poses to house prices. This is because further easing would encourage more lending and consequently boost house prices even more.
Reasons Why the RBA Could Cut Rates
Generally, RBA Governor Phillip Lowe seemed optimistic about the current economic conditions in Australia. He did warn, however, that if inflation or unemployment veer away from their projections, the central bank would ease rates.
He also added that the coronavirus outbreak could trigger them to cut rates. Now, it is still too early to assess the impact of the disease. A contraction in Australia’s GDP could be attributed to the spread of the coronavirus and be enough reason for the RBA to ease.
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AUDUSD Price Analysis
On the daily time frame, we can see that AUDUSD has formed a morning star chart pattern. In forex trading, this candlestick pattern is considered as a bullish confirmation. It could suggest that there may be enough buyers around the 0.6700 handle to push AUDUSD higher.Now, a closer look at the 4-hour chart shows that the rally on the currency pair could be limited to 0.6800. This price coincides with the 100 SMA as well as the falling trend line (from connecting the highs of December 31, January 16, and January 23). Reversal candlesticks around this price may suggest that sellers could soon push AUDUSD lower to its 6-week lows below 0.6700. Meanwhile, an upside break above the trend line could hint that the currency pair may soon rally to its January 16 highs at 0.6920.
On the other hand, a close below yesterday’s low at 0.6677 would invalidate this bullish candlestick pattern. It could suggest that there is a bigger sell-off ahead for AUDUSD.More content
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