Yesterday, the Australian dollar
rose sharply after the PMI data from China showed some significant
improvements. The data showed that the manufacturing PMI rose to above 50 in
March, ending a downward spiral that has been going on this year. Investors
reacted positively about this news because of the important role China plays to
Australia. This is because most of Australian goods are shipped to the country.
As such, any strength in the Chinese economy is a sign that there may be more
demand from Australia.
This changed a few hours ago when
the Reserve Bank of Australia (RBA) delivered its fourth interest rates
decision of the year. As expected, the bank left interest rates unchanged at
the current 1.50%. In the accompanying statement, the bank seemed dovish about
the Australian economy.
On the global economy, the
officials said that the outlook remained reasonable although the growth has
slowed and downside risks have increased. This was followed by a slowdown in international
trade and investment intentions. On global monetary policy, the bank said that
the conditions were more accommodative as officials react to the new normal. The
new normal is that of low inflation, low growth, low unemployment rates, low
bond yields, and sluggish wages.
On Australia, the bank said that
the labor market remains strong, with the unemployment rate currently at 4.9%
and vacancy rate a bit higher. In some places, there are reports of skills
shortage. The economy expanded by 2.3% in the fourth quarter, with the growth
of consumer spending being affected by the weakness in the household disposable
income. The drought in some places has affected the growth, but this has been
offset by the government spending. Inflation remains low and stable but it is
expected to pick up in the next few years. The statement concluded with the
following:
Taking account of the available information, the Board judged that it
was appropriate to hold the stance of policy unchanged at this meeting. The
Board will continue to monitor developments and set monetary policy to support
sustainable growth in the economy and achieve the inflation target over time.
The AUD/USD pair declined sharply
to an intraday low of 0.7080, which was the lowest level since Friday last
week. On the chart below, this price is along the lower line of the Bollinger
Bands while the signal line of the MACD has dropped sharply. The pair will
likely continue moving downwards to test the important support of 0.7050.
The post Australian Dollar Drops Sharply After Dovish RBA Statement appeared first on Forex.Info.