AUD/USD corrects Monday’s gains – will the 200-day average hold?

The Australian dollar reacted negatively to today’s RBA monetary policy meeting and was down more than half a percent during the London session.

RBA keeps rates unchanged

After ten consecutive rate hikes, the Reserve Bank of Australia (RBA) has halted its policy tightening. As a result, the AUD/USD pair has fallen below 0.6770. Governor Philip Lowe of the RBA has maintained the Official Cash Rate (OCR) at 3.6%.

The market was divided on the interest rate decision, as Australia’s monthly Consumer Price Index (CPI) indicator has already indicated that inflation has declined rapidly over the last two months, from 8.4% in December to 6.8% now. Philip Lowe, the governor of the RBA, appears to be reasonably confident about the further decline of Australian inflation.

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Board acknowledges that monetary policy operates with a lag and that the full impact of this significant increase in interest rates has yet to be felt.

Board decided to maintain interest rates unchanged this month to enable more time to evaluate the impact of the increase in rates to date and the economic outlook. However, Board anticipates that more monetary policy tightening may be required.

Geopolitical tensions continue

Sergey Lavrov, the Russian foreign minister, fuelled worries about rising Moscow-Brussels tensions by declaring that the European Union (EU) had “lost” Russia. The official stressed that if necessary, Russia would severely deal with Europe.

Moreover, a representative of China’s Consulate General in Los Angeles expressed opposition to a meeting between Taiwan President Tsai Ing-wen and US House Speaker Kevin McCarthy.

The US Dollar fell on Monday as risk appetite and lower US rates in response to weaker-than-anticipated US economic data weighed on the currency. In March, the ISM Manufacturing PMI came in at 46.3 instead of the anticipated 47.5. In addition, the ISM Service PMI and the ADP Employment report are due on Wednesday.

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Following the release of the data, Fed Governor Lisa Cook stated that she still anticipates a modest increase in interest rates, given the continued strength of the US job market. Yet, the market for futures on short-term interest rates implies that the subsequent Fed increase will be the last.

Technically speaking, the pair is now retesting the 200-day moving average (the green line). Bulls must hold this level in order to confirm the bullish breakout. Another support level is at previous highs near 0.6730. Overall, it looks like a nice triangle pattern with a bullish breakout, likely sending the pair toward 0.69 in the near future.