Among the major currencies, the Australian dollar had the biggest lost after the opening bell as the decision by the Reserve Bank of Australia to keep the interest rates on hold weakened the currency. The Aussie lost the track against the greenback again after surviving the bearish path during the overnight session on Monday. The lame performance of the Aussie was also aligned with the falling oil prices prior to the release of the American Petroleum Institute’s inventory report. With the lack of support from the RBA and to the trading market, can the Aussie break the resistance bar and move a tad higher? Or will it continue to wallow until the Fed monetary policy decision?
The Australian dollar struggled to maintain the recent gains as it dropped 0.27 percent against the US currency. AUD/USD opened at 0.74458 with a session high of 0.74517 and a session low of 0.74457 as of 14:14 UTC. The pair found resistance at 0.74549 and support at 0.74451 in the mid-session. If a breakthrough will occur, the new resistance will be at 0.74595, while a fall through will result in a new support at 0.74225.
As the hourly AUD/USD chart showed, there was a potential reversal as the pair moved downward. In case the downtrend will remain, the AUD/USD may drop until the 0.74100 level before the market closes. The pair is trading below its 20-day SMA of 0.74576 and has started to move beyond its 50-day SMA of 0.74463
Currently, the Australian dollar remained weak against the majors. AUD/JPY dropped at 84.884 while AUD/CAD was weak at 0.98921. EUR/AUD and GBP/AUD were nearly steady at 1.44040 and 1.71009.
RBA Monetary Policy Decision
Earlier today, the Reserve Bank of Australia announced the unchanged 1.50 percent cash rate with a steady outlook in the Australian economy due to booming mining investment. In the speech delivered by Governor Philip Lowe, he noted about the hovering commodity prices and the balanced outlook for the global inflation.
However, the inflation in Australia was found to be quite low, which called for the maintenance of lower rates.
“The continuing subdued growth in labour costs means that inflation is expected to remain low for some time, before returning to more normal levels.”
“Low interest rates have been supporting domestic demand and the lower exchange rate since 2013 has been helping the traded sector. Financial institutions are in a position to lend for worthwhile purposes. These factors are assisting the economy to make the necessary adjustments, though an appreciating exchange rate could complicate this.”
Oil Price Falters
Following the huge jump of the oil futures, an unexpected decline occurred after the opening bell amid the cautious trading ahead of the inventory report. The existing glut supply keeps on haunting the oil market and affects the trading decision of most of the investors. Also, traders were likely weighing the abrupt surge of oil prices and took a breather.
Meanwhile, the strong trade link of Australia with China and its reliance with the trading sector affect the strength of the currency when the prices of the commodities drop. At the time of writing, WTI Crude oil for January contract on the New York Mercantile Exchange dropped 0.44 percent to $51.56 per barrel while Brent crude for February delivery on the International Commodity Exchange eased 0.09 percent.
Fed Rate Hike
The strength of the US dollar slightly eased before the Fed meeting this month. Most of the currencies took advantage of the little doubt left by the Fed officials on Monday. Federal Reserve Bank of New York President William Dudley clarified its stand in making monetary policy somewhat less accommodative over time by gradually pushing up the level of short-term interest rates. However, he added that there was still considerable uncertainty about how fiscal policy will evolve over the next few years.
Apparently, the likelihood of a rate hike would support the uptrend of the US dollar, thus, a basket of currencies will likely fall. The Fed officials agreed that a sustainable economic growth and the return of inflation target back to 2 percent would strengthen the course of a rate increase.
At the time of writing, the greenback was mostly lower against the euro, the sterling and the loonie. On the other hand, the USD remained strong against the yen, the Chinese yuan and the Aussie.
The Aussie will likely find it hard to acquire solid gains considering the turbulence that US rate increase would cause and the fluctuations in oil prices before the implementation of the agreed oil output in 2017.
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