The Aussie has rebounded nicely this week, recovering half the losses from last week, when it tumbled 2.5%. AUD/USD edged higher and was trading just below the 0.71 level in the European session.
RBA holds rates, winds up QE
There were no surprises from the RBA policy meeting earlier today. The central bank held the Cash Rate at a record low of 0.10% and announced that it would wind up its bond purchase program in February.
The RBA had expected to retire the bond purchase scheme in May but brought the date forward due to better than expected employment and inflation data for December. The unemployment rate has fallen to 4.2%, while Core CPI is at 2.6%, in the middle of the RBA’s target band of 2%-3%.
These strong numbers could justify a rate hike, but the RBA has stuck to a dovish script, and Governor Lowe has tried to dampen rate hike expectations by saying that the bank will not hike rates before wage growth rises to 3%, which is not expected until 2023. In his statement, Lowe acknowledged that inflation had picked up, but said that it was too early to conclude that it was “sustainably” within the target band.”
The markets remained more hawkish about a rate hike and priced in a move in the second half of the year. Investors were betting that Lowe will have to hike before achieving his wage growth target due to surging inflation. Any hints from the RBA about a rate hike would be significant, as the bank last raised rates back in 2010.
The Australian dollar shrugged off poor retail sales data for December. The 4.2% decline came after five successive gains and was the sharpest drop since April 2020. The Omicron variant has weighed heavily on consumer spending and this may be reflected in January and February retail sales reports as well.
AUD/USD Technical
- AUD/USD faces resistance at 0.7133. Above, we find resistance at 0.7271
- There is support at 0.6913 and 0.6831
