The head of the Reserve Bank of Australia reassured AUD/USD traders, although he did not rule out a further reduction in the interest rate to 0.75%. Of course, this is a bearish factor that will put background pressure on the "Aussie". But, on the other hand, Lowe made it clear that the RBA is unlikely to follow the path of New Zealand colleagues. Let me remind you that the RBNZ cut the rate immediately by 50 points this week, which shocked not only the traders of the NZD/USD pair, but also the rest of the market participants. Investors suggested that the RBA would repeat such a maneuver in the fall and cut the rate to 0.5%. Against the backdrop of such assumptions, the Australian dollar paired with the US currency collapsed to 2009 price lows despite a general greenback weakening. The results of a rather neutral meeting of the RBA could not convince traders, which took place this week. Thus, the Australian continued to fall.
However, the downward movement was impulsive and short-term. Within one day, the AUD/USD pair reached a 10-year low and immediately rebounded from it, updating the high of the day. Aussie attracted buyers who began to buy the Australian dollar at record low prices. In this case, technical factors played a key role. After such an impulse fall, a corrective pullback was inevitable and the AUD/USD bulls took advantage of this axiom. At the moment, we can't talk about a turning point in the trend. The Australian is only returning to the usual price niche, since the sharp decline in the framework of the 66th figure was, by and large, unreasonable. The market was driven by emotions after an unexpected decision by the New Zealand Central Bank, but now pragmatism, based on the RBA theses voiced today, has replaced emotions.
The Reserve Bank of Australia published its quarterly report today, which repeated the main points voiced at the last meeting of the Central Bank. According to the regulator, Australia needed a "long period of low interest rates" to accelerate inflation, reduce unemployment and increase wages. Also, the RBA again reminded that "if necessary," the Central Bank will continue to soften monetary policy. Such rhetoric is fully consistent with market expectations. After the escalation of the trade war between the United States and China, investors are laying at current prices a rate cut to 0.75% at one of the autumn meetings and to 0.5% at the beginning of 2020.
The head of the RBA, Philip Lowe, commented on some of his points after the publication of the quarterly report. He said there are signs at the moment that the Australian economy may have reached a "soft turning point." The protective measures, particularly we are talking about lowering taxes and interest rates, that were taken by the Australian government and the Central Bank had a positive effect against the backdrop of the devaluation of the national currency. According to RBA economists, the results of quarterly GDP growth will gradually improve "after a series of disappointing releases."
However, Lowe warned that the "era of low rates" will continue for a long time. According to him, unemployment is likely to remain at about 5%, at least until 2021. Meanwhile, the RBA said that the unemployment rate should drop to 4.5% in order to exert upward pressure on wages. In other words, Australian labor market indicators will play a special role for the Australian currency, especially wage dynamics.
Thus, the Reserve Bank of Australia today made it clear that the situation in the country's economy is changing for the better (at least) and RBA economists see the corresponding potential. However, if these signs turn out to be false, the regulator will immediately resume the course on easing monetary policy.
The announced position allowed the AUD/USD pair to return to the area of the 68th figure. Further price dynamics will depend on the behavior of the American currency and the "well-being" of the commodity market, primarily we are talking about the iron ore. The devaluation of the renminbi, as well as a sharp slowdown in demand for metal from the Chinese construction sector, negatively impacted iron ore quotes. The cost of a ton of raw materials fell sharply from $124 to the current 93. The downward movement will put additional pressure on the Australian dollar.
Such a fundamental background is not conducive to large-scale growth of "Aussie". However, the potential for corrective growth has not yet been exhausted. Everything will depend on how sharply the US dollar will react to the continuation of the US-Chinese conflict. In particular, the Chinese regulator again lowered the national currency as the USD/CNY is now at 7.050. It is in response to Washington's actions as the States delayed the issuance of Huawei licenses. The dollar index is slowly decreasing, which means that the AUD/USD bulls of the pair can expect the pair to rise to the first resistance level - that is, to the Kijun-sen line on the daily chart, which corresponds to the level of 0.6880.