AUDUSD was slightly higher on the day after the Reserve Bank of Australia slashed interest rates by 0.15%. The bank also announced a new bond-buying program that traders had expected.
The decision to cut rates to 0.1% had been expected by traders and they also expected a bond program in the AUD$140bn region. The actual figure is to be AUD$100 billion and the bank will purchase government bonds with maturities of 5-10 years during the next six months.
The Aussie is getting a lift because the country saw its first virus-free day in 5 months recently and this gives hope that the rate cut and bond program is a timely boost to create a sustained recovery in the country. The RBA Governor Philip Lowe suggested this in the bank’s statement:
“The combination of the RBA’s bond purchases and lower interest rates across the yield curve will assist the recovery by: lowering financing costs for borrowers; contributing to a lower exchange rate than otherwise; and supporting asset prices and balance sheets”.
Australia’s economy had already shown some hints of a recovery with job vacancies surging, building approvals higher and a gain in house prices for the first time in six months. This could combine with a recovery in China to further boost the outlook for the Aussie currency. The AUDUSD may use this as a base to move higher but the U.S. election today brings event risk and volatility is expected.
The AUDUSD has rallied from the 0.7000 level with a double bottom on the daily chart. This would suggest a move towards the 0.7150 level. Bullish traders could go long a bullish close today with a stop below the day’s low. The Investing Cube team is currently available to help all levels of traders with the Forex Trading Course or one-to-one coaching.
