Today, the Reserve Bank of Australia has left all the parameters of monetary policy unchanged. The key interest rate remained at a record low of 0.10%, as did the target yield on three-year government bonds. In addition, the Australian regulator maintained the status quo on the current size and parameters of the QE program, while noting that traders should not expect any changes in this regard for several more years – at least until the end of 2023.
The AUD/USD pair showed a contradictory reaction to the results of the RBA's May meeting. The Australian dollar sharply strengthened immediately after the announcement of the decision, impulsively rising to the level of 0.7756. But just a few minutes later, this currency returned to its previous positions, reflecting investors' pessimism about the development of the pair's upward trend. It is likely that the first reaction of the AUD/USD pair was due to the fact that before the May meeting, some experts allowed the option of reducing the rate to the level of 0.05%. Therefore, when investors saw that the regulator maintained the status quo, the AUD/USD pair surged. However, this fundamental factor only worked for a few minutes. The rhetoric of the RBA's accompanying statement, which is still "dovish", let the pair's traders decline.
On the one hand, the May meeting of the Australian Central Bank turned out to be a "pass-through", since the regulator left all the parameters of monetary policy in the same form. On the other hand, the RBA revised its basic GDP forecast (to 4.75% for this year and 3.5% for next year) and announced a revision of the QE program.
So, the Central Bank stated once again that it does not plan to raise the rate until the actual inflation is settled on a stable basis in the target range of 2-3%. At the same time, the regulator immediately outlined the time targets, stating that in the coming years, inflation indicators will be lower than the target values. A similar rhetoric was voiced earlier, so in this regard, the Central Bank did not present any surprises. But as for QE, the regulator is intrigued. In an accompanying statement, the RBA indicated that in July, the Central Bank will consider further bond purchases after the completion of the second program of $ 100 billion. In addition, in July, the RBA will consider the fate of the target level of three-year bond yields. The regulator admitted that it is likely that assets "with a different maturity than April 2024" will be selected.
The remaining theses of the accompanying statement are contradictory. On the one hand, the regulator revised the key scenario for GDP growth in the direction of improvement, recognizing that the Australian economy "was stronger than expected." On the other hand, the RBA warned that the overall global economic recovery remains extremely patchy.
At the same time, the regulator expects a decline in the unemployment rate. According to forecasts, the indicator will continue to decline and reach the 5% mark by the end of the year, and it will take the level of 4.3-4.5% by the end of next year. However, the Central Bank is skeptical about wage growth and inflation, suggesting that this increase is likely to be "average and temporary." Therefore, the regulator summed up the May meeting with a standard phrase, which still exerts background pressure on the Australian dollar: The RBA remains committed to an extremely accommodative policy.
The Reserve Bank did not change the parameters of monetary policy, but it announced the corresponding corrective steps at the July meeting. It is clear that Australia's key macroeconomic indicators will be very important for AUD/USD traders, in light of the July meeting. This is if we talk about the long-term prospects. If we consider the prospects of the next few days, then the Australian dollar is expected to follow the US dollar, which cannot decide on the vector of its movement for two weeks. On one side of the scale, we have quite strong macroeconomic reports and the growth of treasury yields, while on the other, we have the Fed's "dovish" position. As a result, the US dollar responds impulsively to the published statistics, but still maintains in place.
From the technical point of view, the AUD/USD pair is trading on the daily chart in the Kumo cloud and on the Tenkan-sen line, between the middle and upper lines of the Bollinger Bands indicator. The trend indicators are calm, maintaining uncertainty about the future prospects of the Australian dollar. Therefore, it is currently advisable to take a wait-and-see position on the pair. But if the AUD/USD bears can break through the support level of 0.7730 (lower limit of the Kumo cloud, which coincides with the middle line of the Bollinger Bands indicator on D1), then we can talk about the priority of short positions with the main target of 0.7675 (Kijun-sen line on the same time frame).