AUD - AUD/USD holds steady after the hawkish RBA interest rate decision
The AUD/USD pair soared in early trading after the relatively hawkish interest rate decision by the Reserve Bank of Australia (RBA) and the upbeat macro data. The pair rose to 0.7768, which was 1.12% above the lowest level on Monday.
RBA interest rate decision
The Australian economy has done relatively well in the past few months, helped by lower coronavirus cases and surging demand from China.
Data published on Tuesday by the Australia Industry Group (AIG) showed that the manufacturing PMI rose from 61.7 in April to 61.8 in May. Similarly, another reading by Markit showed that the PMI rose from 59.7 to 60.4. This is further evidence that the country’s corporate sector is bouncing back since a PMI figure of 50 and above is a sign of expansion.
Further data revealed that the Australian building approvals dropped by 8.6% in April after rising by 18.6% in the previous month. This drop was better than the median estimate of -10%. Other numbers published on Tuesday were positive. For example, business inventories increased by 2.1% in the first quarter while the current account rose from A$14.5 billion to A$18.3 billion in the first quarter.
At the same time, house prices are surging , helped by low-interest rates and the government’s pandemic response measures. Data showed that house prices in Sydney surged by 3.5% in May, with the median house selling at an all-time high of A$1.18 million (646,847 pounds).
It is against this backdrop that the Reserve Bank of Australia (RBA) held its monthly meeting. In it, the bank decided to leave interest rates and the quantitative easing policies unchanged, as was widely expected. The bank also committed to maintain the easy money policies intact in order to support the economy. In a statement, Andrew Lowe said :
“It will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. For this to occur, the labour market will need to be tight enough to generate wages growth that is materially higher than it is currently. This is unlikely to be until 2024 at the earliest.”
AUD/USD technical forecast
The AUD/USD price rose to 0.7768 after the latest RBA interest rate decision. On the four-hour chart, the pair has moved above the 25-day exponential moving averages while the two lines of the Stochastic Oscillator have moved to the overbought level of 80.
A closer look at the chart shows that the pair has formed a head and shoulders pattern. In price action analysis, this price action is usually a bearish signal. Therefore, while the pair held steady after the RBA decision, we can’t rule out a situation where the price retreats into the month.
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