AUD/USD soars after RBA trims rates

The Australian dollar has climbed sharply on Tuesday. Early in North American trade, AUD/USD is trading at 0.7135, up 1.18% on the day. If the pair can consolidate these gains, it will mark the pair’s best one-day performance since late August.

RBA cuts rates, introduces QE

It has been a spectacular day for the Australian dollar, which is up over 1 percent against the US dollar. The RBA rate cut was widely expected, but the same cannot be said about the Aussie’s huge gains. The RBA trimmed the Cash Rate from 0.25% to 0.10 per cent. This was the first rate move since March, when the RBA slashed rates in response to the economic downturn caused by the Covid-19 pandemic. The bank went a step further in easing monetary policy at the Tuesday policy meeting, by implementing a QE program for the first time ever. Under the program, the RBA plans to purchase A$100 billion worth of government bonds over the next six months.

With the RBA lowering rates to a record low, why is the Australian dollar rallying? The answer could be that commodity-bloc currencies, such as the Aussie, are riding on the market belief of a “blue wave” in the US election, meaning that the Democrats will sweep the presidency and both houses of Congress. In this scenario, a “buy everything” mood could weaken the US dollar as investors purchase equities and other assets. Since the RBA cut was widely expected, investors paid minimal attention to the move and the Aussie has shot up on Tuesday. Of course, we could see further movement from AUD/USD, when results begin to come in from the US election on Tuesday.

Dollar volatility likely around election

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AUD/USD Technical

• AUD/USD broke above resistance at 0.7108 in the Asian session. The next resistance line is at 0.7108, followed by resistance at 0.7217.
• We find support at 0.7013, followed by support at 0.6969
• AUD/USD has crossed above the 20-day MA line, which is a signal of an upward trend

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