The hawkish approach by the RBA to keep cash rates at a record low of 0.1%, puts pressure on the Aussie dollar to US dollars to below support levels of 0.7500.
Aussie Dollar to US Dollars Below Key Support at 0.7500 Levels
The RBA keeps cash rates unchanged at a record low of 0.1%. The 0.75 area was a crucial level for the AUD to US dollar currency pair. The RBA maintains interest rates at low levels of 0.1%. The Delta variant is troubling the country, which has kept RBA policymakers hawkish.
The AU to US dollar has key support currency levels at 0.7570, at which the 200 DMA stands. But the decision to keep rates unchanged has weakened the Australian dollar. The foreign exchange market faces wide fluctuations with the Covid infections. Lockdown restrictions have brought a slump to economic activities, as business closures reduce the spending capacity of the people.
US dollar to AUD forex rate is at 1.3342. The US dollar index has gone up to 92.50, which adds pressure on the Australian foreign exchange market. The Australian dollars to US dollars has weakened to below 75.00 levels, with the resurging strength in the US dollar index.
RBA Keeps Cash Rate Unchanged
RBA Governor Philip Lowe states that the cash rate will continue at 0.1% for a few more years. It depends on inflation outcome, says the governor. The RBA will prolong the ongoing stimulus for longer than other countries, says Lowe. The Australian dollars to US dollars have weakened to 2021 lows, with the hawkish approach taken by the RBA. The central bank is on a mission to achieve full employment and keep inflation within a target range of 2 to 3%. The RBAs decision has kept the foreign currency exchange volatile.
At the July meeting, policymakers have kept the yield curve control program of 10 bps at the April 2024 bond maturity. The bond-buying program is at A$4 billion per week, from A$5 billion. Bond-buying will continue till the economy strengthens, says Lowe. The Reserve Bank of Australia’s decision to reduce the weekly bond purchase to A$4 billion boosts the Aussie dollar.
Wage growth has slowed down in Australia. Though economic conditions are improving in Australia, wages have not gone up, and inflation is increasing. The RBA is determined to attain a target of 2 to 3%. It will bring back wage growth to 3%, say experts. The monetary stimulus will continue until the economy grows, says Lowe.
The border closure has affected employment in the country. The housing market has to improve. There is an increase in first-home buyers, and it will support the housing sector says, Lowe. Low-interest rates encourage more home buyers to borrow money.
Lockdown Restrictions Affect Aussie Dollar
The Delta variant coronavirus affects various regions in New South Wales, Sydney, and Queensland. The foreign currency exchange has been volatile, with the coronavirus infection rearing its head frequently in Australia.
Melbourne and Sydney were hit by a 14-day lockdown, as business closures and restrictions hurt their economy. Many other states are recovering from lockdown restrictions in April. The country is in its fourth lockdown since coronavirus infections started in March 2020. But, a new virus strain from California that resists vaccines has brought apprehension in the country.
The coronavirus conditions play a vital role in the latest decision by the RBA on policy matters. The interest rate may rise by 2024, says Lowe. It is the eighth consecutive month of record-low rates at 0.1%.
Slow Economic Growth Lowers Aussie Dollar to US Dollars
The Australian Bureau of Statistics (ABS) reports that retail sales show growth in May. But it is a slow growth as lockdown restrictions have hit sales. Retail sales in May 2021 were at 0.4%, while in May, it was at 0.15%. Footwear, apparel, and personal accessory show wide variations. Food retailing has gone up with an increase in online ordering. The Commonwealth Bank PMIs show upbeat data for June.
According to the ABS, the employment rate is growing. More than 115,000 Australians have secured a job in May. The unemployment rate hit a peak of 7.4% in June 2020. Currently, it shows a gradual declining trend. Australian Treasurer Josh Frydenberg states that the Australian economy shows better recovery than other big economies. The unemployment rate is at 5.1% in April 2021.
The US dollar index has posted modest gains, moving to 92.578 levels. The US dollar index is at 3-month highs. There is optimism in the US economy as traders wait for the Fed’s next move. The Dow Jones saw a steep fall on Tuesday with a drop of 0.15%.
The AU to JPY currency change is at 82.90, as it reverses from the day’s high at 84.00 levels.
The AUD/NZD is at a monthly low at 1.0695 levels. There is optimism around the rate hike in New Zealand, and it weighs on the AUD/NZD forex rates. It is a stark difference to the RBA stance as both countries diverge in their policy outlook. The kiwis were successful in taming the pandemic. But new cases in Australia are still worrying, say officials.