AUD/USD Looks Past RBA, Focusing on Stocks and Sentiment

Australian Dollar, AUD/USD, RBA, Fed, Technical Analysis – Market Alert

The Australian Dollar was little moved on RBA, focusing on market sentiment
RBA not considering extension of term funding facility, CPI to rise near-term
AUD/USD trading with slight bullish undertone, but recent price action neutral

The Australian Dollar was fairly tame after May’s RBA monetary policy announcement crossed the wires. As was widely anticipated, the cash rate target and 3-year government bond yield targets were left unchanged at 0.1%. What seemed to give some life to the Aussie was the central bank’s update that it is not considering a further extension of the term funding facility.

Members also don’t see conditions for a rise in benchmark lending rates until 2024 at the earliest. In July, the central bank will consider whether or not to change the 3-year rate target to the November 2024 bond from the April one from the same year. The RBA also left the door open to further bond purchases in order to meet its inflation and jobs target.

Additional RBA Highlights (Commentary Reported by Bloomberg):

Revised up GDP to 4.75% over 2021, then slowing to 3.5% next year
Unemployment rate to be around 5% at the end of 2021, falling to 4.5% at the end of 2022
Underlying CPI to be at 1.5% this year, rising to 2% in mid-2023
CPI to be temporarily above 3% in the June quarter of 2021

What may have been keeping the Aussie from gaining, despite the RBA’s growth upgrade, was the central bank still leaving the door open to further easing if necessary. Last week’s soft first-quarter Australian CPI report may have already been fueling these expectations. At the same time however, the central bank also downplayed underlying inflation woes, similar to what the Federal Reserve has been doing.

With that in mind, the sentiment-sensitive Australian Dollar will likely shift its focus to risk appetite in the coming hours and remainder of the week. The still-dovish Fed has been downplaying anticipation of premature tapering, reiterated by Chair Jerome Powell over the past 24 hours. As such, the Aussie may remain in a rosy state, with room to weaken given healthy corrections in global stock markets.

Check out the DailyFX Economic Calendar for the latest updates on some these events

Aussie RBA Reaction 15-Minute Chart

AUD/USD Chart Created Using TradingView

Australian Dollar Technical Analysis

From a technical standpoint, the near-term view for the Australian Dollar seems neutral with a slightly bullish undertone. In April, AUD/USD broke above a Descending Triangle chart pattern, opening the door to resuming the dominant uptrend since last year’s Covid-induced low. However, prices have recently been consolidating between the 0.7687 – 0.7702 support zone and the 0.7820 – 0.7849 inflection zone. The 100-period Simple Moving Average may maintain a focus to the upside. Keep a close eye on RSI for signs of divergence, a sign of fading momentum.