AUD/USD : Uptrend as RBA Holds Policy Steady

(Tue, 2 Mar 2021). The Reserve Bank of Australia (RBA) held its monetary policy stance steady on Tuesday, keeping its benchmark rate and 3-year government bond yield target unchanged at 0.10%. AUD/USD saw a slight uptick following the announcement but price action remains fairly muted due to analysts and investors telegraphing the RBA’s move.

While the move from the RBA was forecasted by them, volatility in bond markets are increasing bets for policy changes across the major central banks. Those changes could still be on the way, perhaps even later this year. However, the RBA has pushed back against runaway bond yields. Earlier this week bond purchases were significantly increased, driving the Australian 10-year yield sharply lower.

The Australian economy has performed extremely well in recent months with a robust recovery seen in economic activity, helped by its response to the Covid-19 pandemic and strong exports to China despite an ongoing political spat between the two countries. Still, the RBA finds itself between a rock and a hard place with growth exceeding expectations, increasing inflation, rising bond yields and a rising domestic currency. That said, the RBA remains to keep its 2024 target for raising rates.

AUD/USD TECHNICAL OUTLOOK

Following a sharp breakdown, AUD/USD appears to have found support near its 50-day Simple Moving Average. The broader bullish narrative will likely hold if prices stay above the key moving average. A break lower, however, may see prices extend below the 78.6% Fibonacci retracement level from the February high/low and challenge the psychologically important 76 handle.

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