The Australian dollar was the weakest major currency Tuesday as traders sent it sharply lower after the latest Reserve Bank of Australia monetary policy decision. At the time of writing, the AUD/USD pair was down 1.2%, changing hands at around 0.7430.
Dovish RBA undermines the Australian dollar
Earlier in the day, the Australian central bank left monetary policy unchanged, and the primary rate was kept at 0.1%, as widely expected. Following the decision, Governor Phillip Lowe held a press conference, presenting the dovish bias of the central bank . Below are some of his most important remarks.
Inflation has picked up, but in underlying terms is still low, at 2.1 percent. The RBA will not increase the cash rate until actual inflation is sustainably within the 2 to 3 percent target range. Market pricing for early rate hikes is extremely unlikely.
Regarding the economic activity in Australia, the central forecast is for GDP growth of 3 percent over 2021 and 5½ percent and 2½ percent over the following two years.
As for rising house prices, the RBA will not use interest rates to contain housing prices . However, borrowers need to be aware that loan rates will rise one day.
Don't have an inflation problem in Australia, Lowe concluded.
Falling commodity prices hinder the Aussie further
Tuesday has been a somewhat bearish day for commodities, damaging the Australian dollar further. During the US session, oil was down 1% to trade near 83 USD, silver plunged 2.5% to 23.40 USD, gold traded below 1,790 USD, and copper fell 1% to 4.34 USD.
It looks like the recent rally has been stopped by the 200-day moving average, currently near 0.7550. On a shorter time frame, a double top formation has formed. The neckline of the formation at 0.7460 has been broken down already. Therefore, the short-term outlook has changed to bearish.
As long as the Aussie trades below the first resistance of 0.7460, rallies could be sold. The next target for bears will likely be at previous highs and lows near 0.7380, still not representing the full 90 pips potential of the double top pattern.
Alternatively, should the Australian dollar jump back above 0.7450, the recent correction might be over. The medium-term uptrend would likely resume in that scenario, targeting the 200-day average and current cycle highs at 0.7550.