The Reserve Bank of Australia: Between the Rate and Prospects

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Image via Cimexus/Flickr CC

Since the beginning of 2017, the Australian Dollar has grown pretty well. A lot of different things have happened over the last eight months: at first, the USD strengthened, then the Aussie rallied, and so on “ad infinitum”. The latest published statistics shows that Australia’s quitting the resource-based economy was a pretty successful decision after all, although this process was complicated and time-consuming. The population, which was employed in the mining industry, was successfully placed in jobs in other sectors, and the country is not as dependent on the commodity prices fluctuations as before. The process is still ongoing, and even if it’s not very fast, it’s effective. The Reserve Bank of Australia, in its turn, does its best to support the economy.

At the beginning of autumn, the key rate of the RBA remains at the record-low level, at 1.50%. The regulator emphasizes that the current rate value is in full accordance with the economic situation and the GDP and inflation targets. Average market expectations imply that the RBA might increase the rate in the middle of 2018 by 50 basis points.

Proactive approach to the monetary policy is very typical for the Reserve Bank of Australia. The rate is usually increased or decreased before the country’s economy and the financial market really need it. Therefore, the current rate seems pretty okay for the first half of 2018. Although, it’s quite possible that the RBA may put the rate decision on hold until the moment the domestic demand reaches the required numbers.

The business experiences the inflow of investments, enterprises and factories are supported by stable orders and slowly expanding their operations. However, consumers don’t spend much, less than they could have spent in current conditions. The same can be said about households. It indicates that the population’s attitude to the current growth of the economy is rather mixed. Probably, Australian citizens don’t rule out that there might be more global economic problems, so they prefer to save money. However, there is no point in increasing the rate if consumer and household spending remains the same. This, in its turn, means that the Australian Dollar is very dependent on the national statistics and foreign news.

The long-term technical picture of the AUD/USD pair is the following. The downtrend was completed at the end of 2015 and beginning of 2016 after the price had broken the descending resistance line (colored in red on the chart). As a result, all movements that followed may be considered as parts of the uptrend, which has been formed since then. The first impulse the price formed after breaking the resistance turned out to be a pretty strong signal of the tendency reverse. The correction that started later transformed into the long Flat pattern. The pattern defined very distinct borders of support and resistance areas, and the price’s breaking one of them might have shown the direction of the future price movement. The pair had been moving like this for about a year and broke the highs in July. The new ascending impulse allowed the market to form the uptrend channel, which can be easily seen on the picture.

Right now, we should note that after reaching the resistance line, the price started a micro correction to the downside. The target of this correction may be the broken resistance area, which is now a support one, close to 0.7685. The uptrend may continue only after the pair breaks the current resistance level and fixes above it. In this case, the target will be at 0.8630.

Author: Dmitriy Gurkovskiy, senior analyst at RoboForex


Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex bears no responsibility for trading results based on trading recommendations described in these analytical reviews.

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