The AUD/USD pair is recovering most of its initial losses following the Reserve Bank of Australia’s (RBA) interest rate decision and rebounding to near 0.7085 following Governor Michele Bullock’s press conference.
In its policy decision, the RBA announced, as expected, another 25 basis point (bp) boost, with a gigantic majority, and raised the Official Cash Rate (OCR) to 4.1%. Five of the nine members of the five-led committee voted in favor of raising interest rates, signaling to investors that the only driving force behind the decision to raise rates was the recent boost in global inflation expectations due to rising oil prices.
“The conflict in the Middle East has led to sharply higher fuel prices which, if they continue, will drive up inflation,” the RBA said in its monetary policy statement.
However, RBA Governor Bullock explained at a press conference that regional Australian inflation was already high because demand outpaced supply even before the conflict in the Middle East, and the interest rate was not high enough to bring inflation back to target, according to The Age.
Meanwhile, the US dollar (USD) continues its corrective move on Monday ahead of Wednesday’s monetary policy announcement by the Federal Reserve (Fed).
AUD/USD technical analysis
At press time, AUD/USD rates are rising at around 0.7085. The short-term bias is slightly bullish as the spot holds above the rising 20-day exponential moving average (EMA) near 0.7060, maintaining the near-term uptrend from recent lows. Price action has repeatedly returned to and bounced from this EMA, highlighting it as animated support within a steady rally.
The 14-day relative strength index (RSI) in the 40.00-60.00 range signals sustainable momentum after weakening from the 60.00-80.00 zone, indicating softened trend strength while upside potential remains intact.
Initial resistance appears around 0.7100, just below last week’s limit at 0.7120-0.7150. A daily close above this band would reopen the path towards the mid-0.72 and then 0.7300. On the other hand, the first support is the March 3 low at 0.6944, followed by the February 6 low at 0.6900. A sustained move below the latter would strengthen the chances of a deeper corrective phase towards the 0.6770-0.6800 area.
(The technical analysis for this story was written with the assist of an AI tool.)
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages Australia’s monetary policy. Decisions are taken by the Board of Governors at 11 meetings a year and, when necessary, at extraordinary ad hoc meetings. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also to “…contribute to currency stability, full employment and the economic prosperity and well-being of the Australian people.” The main tool to achieve this goal is to raise or lower interest rates. Relatively high interest rates will strengthen the Australian dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation has always traditionally been considered a negative factor for currencies because it generally lowers the value of money, in newfangled times the opposite has been true with the relaxation of cross-border capital controls. Moderately higher inflation is currently prompting central banks to raise interest rates, which in turn is attracting more capital inflows from global investors looking for a lucrative place to stash their money. This increases demand for the local currency, which in the case of Australia is the Australian dollar.
Macroeconomic data measures the health of an economy and can influence the value of its currency. Investors prefer to invest their capital in economies that are safe and sound and growing rather than uncertain and shrinking. Greater capital inflow increases aggregate demand and the value of the national currency. Classic indicators such as GDP, PMIs for industry and services, employment and consumer sentiment surveys can influence the AUD. A sturdy economy may prompt the Reserve Bank of Australia to boost interest rates, also supporting the AUD.
Quantitative easing (QE) is a tool used in extreme situations where lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian dollars (AUD) to buy assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the inverse of QE. It is undertaken after quantitative easing, when economic recovery is underway and inflation begins to rise. While under QE the Reserve Bank of Australia (RBA) buys government and corporate bonds from financial institutions to provide them with liquidity, under QT the RBA stops buying more assets and stops reinvesting maturing capital into bonds it already holds. This would be positive (or bullish) for the Australian dollar.
