RBA Rates Announcement: Reaction

AUD/USD rallied higher following a more hawkish RBA minutes in which Governor Stevens mentioned that “growth in China remained reasonably robust”. Though keeping cash rate at 3.5% was widely expected, having such hawkish statement about China caught the market by surprise. However not all is rosy as Stevens highlighted falling commodity prices as an important concern to the Australia economy. Australia exports iron ore to China, which has taken a huge hit due to declining global economy due to slowdown in both China and Europe. Furthermore, though AUD has weakened a fair bit from its recent high of 1.06 and year high of 1.08, the currency can be considered as expensive when placed next to EUR, GBP and USD. This further impact Australia which has an exports based economy.

Certainly, the recent downward theme of AUD/USD while its EUR and GBP counterparts remain nicely supported shows that market is indeed pricing in a worsening of the Chinese market, hence the surprise when Stevens appear to be much more upbeat about what China has to offer in the near future.

AUD/USD is currently trading 40 pips higher after the event. Prices has stalled a little bit at H3 but have continued to reach current H4 levels. As Europe markets start to open, if prices are able to sustain above H4, we can look to H5 which is incidentally around Friday’s close price for any potential decrease of momentum. Conversely, if price fails to break H4, bearish sentiment set on Monday will remain in force.

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