A lesson from the RBA as Aussie dips

The Australian dollar continues to lose ground, having declined for a fourth successive day. Currently, AUD/USD is trading at 0.7329, down 0.18% on the day. The pair could fall into 72-territory as early as today and is trading at its lowest levels since November.

It’s been a rough spell for the Aussie. Traditionally, July is one of the strongest months for the currency, but this July has been dismal, with the currency down 2.44%.

The RBA released its minutes from the July meeting. At the meeting, the RBA trimmed its weekly bond purchases from AUD 5 billion per week to 4 billion per week as of September. The minutes noted that there was intense discussion around the taper, with members acknowledging that a strong argument could be made not to trim, given that the Bank’s targets for inflation and employment had not been met. In the end, policymakers opted to go ahead with the taper. The minutes also reiterated that Bank members did not expect that conditions would warrant a rate hike prior to 2024.

Taper yes, dovish no

Investors and traders take note – the RBA is providing an important lesson for those willing to listen and learn. The Bank went ahead with its trim, which made headlines and sent the Australian dollar higher. However, the gains were short-lived, as the Bank retained its dovish stance even as it tightened policy (modestly) by tapering its QE programme. Investors and traders who snapped up Australian dollars after the RBA taper jumped the gun, because the Australian dollar has largely been on a downswing since the RBA meeting earlier this month. Clearly, a taper does mean that a central bank has changed into a hawk; in the case at hand, the RBA said at its meeting that stimulus would be required and rate hikes were a long way off, even while tapering at the same time.

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AUD/USD Technical

• AUD/USD is testing support 0.7319. Below, there is support at 0.7247
• There is weak resistance at 0.7358, followed by resistance at 0.7541

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