Australian Dollar Pops as the RBA Leaves Taper Plan in Place. Now What?

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

Australian Dollar rose as the RBA left alone its plan to taper asset uptake
Fairly confident outlook in the medium-term overshadows near-term risks
AUD/USD testing 20-day Simple Moving Average, watch for a breakout

The Australian Dollar rallied after the Reserve Bank of Australia delivered August’s latest monetary policy announcement. As anticipated, the central bank left the benchmark cash rate target at 0.10 percent. What likely drove investors to buy Aussie Dollars was that the RBA left alone its plan to reduce the amount of weekly asset purchases to A$4 billion in September from the current pace of A$5 billion.

Since July’s interest rate decision, lockdowns across parts of Australia amid the emerging Delta Covid-19 variant have been denting local growth prospects. This was pushing Australian government bond yields lower as traders priced in a more dovish central bank. There were also rising expectations that the central bank could reverse July’s decision to reduce weekly asset purchases later this year given these developments.

Additional RBA Highlights (Commentary Reported by Bloomberg):

Australian economic outlook uncertain in the coming months
Growth at a ‘little over’ 4% in 2022, then around 2.5% over 2023
Will consider economic, health situation in shaping the policy outlook
The economy is still expected to grow strongly again next year

All things considered, the central bank seemed fairly confident about the economic outlook in the long run. Even though there have been lockdowns, the RBA noted that past experience has shown that the ‘economy bounces back quickly’. GDP is expected to decline in the third quarter. Despite some downward revisions to the outlook, the RBA seems confident in proceeding as normal, offering the Aussie Dollar some relief.

The road ahead remains uncertain. China, Australia’s largest trading partner, placed millions under a strict lockdown amid rising Covid cases. If growth falters in the world’s second-largest economy, then that pain could be felt in Australia. AUD/USD might find some relief if a softer-than-expected US non-farm payrolls report further tempers Fed tapering bets. But, an outsized miss could induce AUD-negative risk aversion.

Check out the DailyFX Economic Calendar for the latest updates on NFPs.

AUD/USD RBA Reaction 5-Minute Chart

AUD/USD Chart Created Using TradingView

Australian Dollar Technical Analysis

From a technical standpoint, the broader trend for AUD/USD still seems to be pointed to the downside. A bearish crossover between the 50- and 200-day Simple Moving Averages (SMAs) is hinting at a downward bias. Keep a close eye on the near-term 20-day SMA. A breakout above this line, with confirmation, may open the door to a push higher in the short run. Otherwise, extending under key support at 0.7290 exposes the 78.6% Fibonacci retracement at 0.7209.