RBA Interest Rate Decision: Has AUD/USD Reached Its Top?

The AUDUSD pair has ended up pretty much where it was after the last meeting of the RBA. But a lot has happened in the meantime.

The pair shot higher at the start of the month after reports that China was fed up with the constant rise in commodity prices.

It’s true that commodity prices have slipped a bit since then, but Australia’s main export – iron ore – is still only a fraction off of record highs. Iron ore traded at $205.73 on the close on Friday, which is still way over double the pre-pandemic price.

It’s even 80% higher than the highs during the shortage caused by the accident in Vale’s mine in Brazil.

So, it’s monetary policy?

The Aussie compared to a basket of currencies has largely remained flat since the beginning of the year.

Generally, late January is seen as the start of the global recovery, since by then it was clear the “second wave” was over and vaccine production had reached mass-manufacturing levels. So it’s not a surprise that the market shifted slightly.

However, in the latter half of last year, the RBA generally paused in their asset purchases and then started aggressively expanding their balance sheet. An Aussie that’s too strong would make monetary policy more difficult (cause deflation) and potentially hurt the benefits of the recovery (lower the profits from exports).

How much money are we talking about?

Since the start of the year, the RBA has put over AUD150B into the fixed income market through asset purchases. That is nearly 50% more than the AUD110B that it did during the crisis of the pandemic.

If the Australian economy is in recovery mode, the RBA certainly isn’t behaving like that.

What are we expecting?

The consensus among analysts is that the RBA will hold tight on all policies at this meeting.

They have committed to revising policy at the next meeting in July, and there isn’t any massive change that would lead analysts to suspect that they would break their promise.

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