AUDUSD Recoups Gains Back to 0.6700 on RBA Rate Statement

Summary:
• AUDUSD gave up all its gains following the RBA's decision not to cut rates earlier this week after the central bank released its official statement.

Earlier this week, the RBA announced that it would keep rates steady at 0.75% but its statement was only released today. If you remember, AUDUSD rose following the decision. Today, however, the currency pair is under selling pressure as details of the central bank’s decision were released. AUDUSD fell from its Asian session highs at 0.6735 to 0.6712 following the statement.

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According to the report, the central bank currently sees more downside than upside risks to further easing. Their biggest concern for now is that a rate cut would only encourage borrowing even more and fuel the already-rising house prices. Only if the unemployment rate “materially higher” and the lack of progress on inflation would warrant a rate cut.

In a separate speech to the House of Representatives’ Standing Committee on Economics, RBA Governor Phillip Lowe offered some relief to AUDUSD. According to him, “negative rates extraordinarily unlikely.”

The RBA said that bushfires would have minimal effect on economic growth. Consequently, the statement revealed downward revisions to the bank’s GDP forecasts. Growth for Q4 2019 is now seen at 2.0% versus initially being estimated at 2.3%. Meanwhile, GDP for June 2020 is eyed at 1.9% versus 2.6%. As for the coronavirus, the central bank says it’s still too early to assess its impact.

AUDUSD Price Analysis

The RBA rate statement did not pose any surprise to market participants. Perhaps the rally on AUDUSD earlier this week was the market’s knee-jerk reaction to rates not being cut. Today’s rate statement, on the other hand, reminded market participants that further easing is not off the table.

As of this writing, AUDUSD is finding support around the 0.6700 handle where it previously bottomed in August and October. A close below this week’s low at 0.6677 would trigger a bigger sell-off to 0.6270 where AUDUSD bottomed on January 2009.

On the other hand, a bullish close above the 23.6% Fib level (drawing the Fibonacci retracement tool from the high of December 31 to this week’s low) is needed for a rally on AUDUSD. If this happens, it could trade higher to 0.6860 where it could test resistance at the 100 and 200 SMAs.