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RBA leaves rates unchanged, AUD remains high

Summary:

  • RBA leaves rates at 1.5%, warns against AUD appreciation
  • Mixed data from Asia, China shows growth in services
  • AUDUSD could still attack 0.80

The RBA was not expected to change interest rates so this decision comes as no surprise. The question was if the central bank could use somewhat stronger domestic data to argue for higher interest rates in the future, especially amid similar moves made by other central bankers. This was not the case. Although RBA president Philip Lower underlined economic improvement on a global scale and saw some positive developments in the Australian economy, he also stressed that appreciating AUD would complicate reaching growth and inflation goals. Overall the message is neutral - higher rates in the future are possible, especially if wages pick up, but too rapid AUD appreciation could be met by a resistance from the central bank. Therefore while commodity prices exported by Australia have exploded as of late the AUD looks unlikely to follow suit and a moderate pace of gains seems to be the best case for Australian currency. 

We also received a broad set of the data from Asian economies. The most important include:

  • China Caixin PMI services up from 51.5 to 52.7 pts. (August)
  • Australia balance of payments -9.6 billion AUD, expected -7.5 (second quarter)
  • Australia PMI indices for services: AiG down from 56.4 to 53 pts., CBA down from 57 to 54.2 pts. (both August)
  • Japan PMI services down from 52 to 51.6 (August)

Not the best mix overall, especially for the AUD. China is a notable exception but one could wonder how much is due to stimulus ahead of the party congress in October -  we will probably see towards the end of the year.

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AUDUSD enjoys a favourable technical outlook on W1 interval. Source: xStation5 

Despite a mixed message the AUDUSD looks still solid on the chart. On a weekly chart the pair broke the 0.7775 resistance and has used it as a support since then. All the three weekly candles after the retest have lower shades suggesting that a demand at this level remains firm. The pair could aim higher as there is no obvious resistance in the neighborhood.  

 

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