Market Analysis

Reserve Bank of Australia expected to communicate a balanced tone this week

The Reserve Bank of Australia meets on Tuesday to decide on where to set the nations interest rates, with most economists expecting the central bank will keep interest rates on hold and strike a balanced tone towards the Australian economy and any future rate changes. Market participants currently see a downward path for Australian interest rates sometime in the second fiscal quarter of 2019, particularly if the Sino-U.S trade war starts to impact Australia’s export-reliant economy over the coming months.

Policymakers are expected to acknowledge recent strong domestic jobs data from Australian economy, which saw a better than expected 21,600 new people employed last month and the nations unemployment rate returning to five percent, marking its lowest level since 2012. The RBA is also expected to underscore recent solid wage growth, which saw a 2.3 percent increase in Average Earnings during the last fiscal quarter.

The most anticipated segment of the RBA’s monetary policy statement will be the central bank’s latest take on the effects of the Sino-U.S trade war on the Australian economy. The Reserve Bank of Australia is expected to cautiously asses economic data over the coming months, as its two largest trading partners start to impose trade tariffs on each other’s goods.

Economic data has largely been mixed, with new orders figures increasing on a monthly basis alongside Australia’s Manufacturing PMI, which climbed to 52.5 in January 2019 from an upwardly revised 50 during the previous month, while Industrial production fell -0.80 last month and the overall services sector declined.

Australian housing data has also been notably weak, with markets growing increasingly concerned about the nations overheated domestic property market, where house prices and building permit data are quickly falling. The overall construction industry in Australia fell at its steepest rate in five-and-a-half years last month, while the nations housing and apartment building sectors declined the most seen in six years.

The overall take from Tuesday’s meeting is one of caution and a wait-and-see approach from the Reserve Bank of Australia when assessing economic data, particularly GDP, inflation, credit and housing numbers for the first quarter of 2019. The upcoming Australian trade balance and exports data releases this week will provide a key indication if the current slowdown underway in the Chinese economy is starting to spill over into the broader Australian economy.


AUD/USD Daily Candlestick Chart | Source: ActivTrader Platform

AUD/USD Daily Candlestick Chart | Source: ActivTrader Platform


The Australian Dollar has remained fairly resilient against the US dollar so far this year, the path of least resistance has most definitely been to the upside. The appreciation in the AUD/USD pair during January has been attributed to weakness in the greenback and general early year demand for commodity-related currencies.

The upward bias in the AUD/USD pair is likely to last while price holds above the 0.7050 level, buyers are currently performing bullish daily closes above the pair’s 200-day moving average. The 0.7270 to 0.7295 area is the next key area bulls need to push above, with the 0.7340 and 0.7380 levels the major technical resistance areas above the 0.7295 level.


Written by Nathan Batchelor, External Analyst


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