AUD: Australian Dollar declines after RBA decision

At the Forex currency market the Australian Dollar rate declines on Tuesday because Reserve Bank of Australia has left interest rate unchanged.

Forex forecast: MACD indicator is in the positive area for the pair AUD/USD, moving upward from the signal line, and giving a shape to a buy signal. Stochastic Oscillator is moving along the signal line  in the neutral zone, not giving a clear signal.

Forex recommendations: in case of breakdown at the level of 1.0650, the pair will go to 1.0630 and 1.0610. If downward breakdown does not take place, the pair will consolidate at the current levels.

Thus, the Reserve Bank of Australia has left interest rate at the previous level of 4.75% per annum and stressed that current course of policy is quite acceptable, which triggered sales of the AUD because it might mean that monetary policy tightening will continue to be suspended in the next few months.

It was announced earlier that inflation in Australia increased by 0.2% m/m (+3.3% y/y), as per estimates of TD Securities. It is the weighted average inflation index which is a guideline in decision making for the Bank of Australia, and it is slowing down its growth rate at the moment (in April: +0.3% m/m), indicating that prospects of the increase in the interest rate in the coming months are slipping away.

Earlier representatives of the Ministry of Finance in Australia said that level of GDP is not the way to determine further movement of economy, although the Ministry still expects further improvement in the country’s economic growth. We would remind that GDP in Australia fell by 1.2% on quarterly basis (+1.0% y/y) in QI, which is the maximum fall in 20 years. However, decrease in the local economy was not as much as expected, although aftermath of the flooding had a severe impact on exports (the fall of 8.7% in QI which equals to -2.1% of GDP). Despite such state of economy, the market is convinced that the RBA will make the first step towards monetary policy tightening in August this year, interrupting the pause of the previous five meetings. Economists anticipate that second half of the year will be more successful: intake of business investments gives cause to such forecast.
It became known last week that index of business activity in the Australian service sector (PSI) declined to 49.9 points in May. Therefore, it fell below the key level of 50 points. In April the indicator grew to 51.5 points.

The RBA admits that if economic situation will develop according to expectations, interest rate increase will become a necessity. However, market is not yet assured if it is really required.

 

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