AUD retreats on RBA minutes

Heading into today’s RBA minutes, AUD/USD had been holding its ground around the 0.94 level. 

USD
Source:Bloomberg

The pair has been relatively unmoved by most of the recent releases and in fact looked like it was in a good position to extend gains. Today’s minutes simply reinforced the RBA’s ‘on hold for longer’ bias and in turn weighed on the AUD.

The key comment was that the RBA reinforced the period of stability in rates. Of particular interest was the RBA acknowledging it is hard to gauge how much the low interest rates will offset a drop in mining investment and tighter fiscal conditions. Additionally, the resilient AUD is not really helping growth in the domestic economy become more balanced.

While the RBA highlighted that the exchange rate remains historically high, particularly given the further decline in commodity prices, I don’t feel this necessarily means intervention is on the cards. This is probably merely a warning that at some point the AUD will have to play catch-up to the tough conditions, particularly in the commodities space. Regardless, all these factors combined to drag the AUD lower, with AUD/USD trading down to 0.936.

It seems the investment community is unconvinced that the move away from mining dependence will be enough to stabilise the economy in the near term. Regardless, I feel China stimulus and yield appeal will be enough to keep AUD/USD underpinned in the near term.

Price action wise there is an uptrend which has been in place since January and currently comes in at about 0.93 and perhaps we might see some buying kick in at that level. To the upside, the level to look out for in the near term is 0.946, where April highs are. 

Click on chart to enlarge.

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