AUD/USD erased earlier gains on Tuesday, as in spite of a softer US Dollar, the prospects of further monetary stimulus by the Reserve Bank of Australia weighed on the Aussie.
The pair briefly advanced above the 0.7200 mark, after the RBA left the cash rate without change at a record low level of 0.25% at its policy meeting today, in line with expectations.
RBA policy makers noted there had been an improvement in Australia’s unemployment outlook, as they now expect the rate to peak below the 10% level projected in September. However, the RBA Board “continues to consider how additional monetary easing could support jobs” as the economy opens up further.
The central bank once again noted that the cash rate would not be raised until progress was being made towards full employment and inflation remained sustainably within the 2%–3% target range.
“The easing bias is still very much there,” Chris Weston, head of research at Melbourne-based Pepperstone, said.
“The market’s anticipating a lower yield-curve control target at some stage.”
On the macroeconomic front, an official report showed earlier Tuesday that Australia had registered the smallest trade surplus since October 2018 in August (AUD 2.64 billion), as global demand remained subdued.
Meanwhile, growing optimism over a new US coronavirus relief package and US President Trump’s discharge from hospital after COVID-19 treatment were supporting a broader rally in riskier assets, while the greenback remained a notch weaker against major peers.
White House Chief of Staff Mark Meadows said there was still potential for a deal on more economic relief, as he underscored President Trump’s commitment to ensure an agreement is reached.
“I think hopes of U.S. stimulus are the main driving force,” Masafumi Yamamoto, chief currency strategist at Mizuho Securities, said.
“As for Trump’s discharge, the impact is not clear-cut but it is seen as positive for risk environment to the extent that there are less worries about the White House getting caught in complete chaos and unable to make decisions.”
As of 7:02 GMT on Tuesday AUD/USD was edging down 0.31% to trade at 0.7156, after earlier touching an intraday high of 0.7209, or a level not seen since October 1st (0.7209). The major pair has dipped 0.04% so far in October, after retreating 2.91% in September, its first monthly loss since March.
In terms of macro data, today’s focus will be on US trade balance report for August due out at 12:30 GMT.
And at 14:40 GMT Federal Reserve Chair Jerome Powell is scheduled to speak on US economic outlook at the National Association for Business Economics Annual Meeting via webcast.
Bond Yield Spread
The spread between 2-year Australian and 2-year US bond yields, which reflects the flow of funds in a short term, equaled 3.8 basis points (0.038%) as of 6:15 GMT on Tuesday, down from 4.9 basis points on October 5th.
Daily Pivot Levels (traditional method of calculation)
Central Pivot – 0.7176
R1 – 0.7196
R2 – 0.7213
R3 – 0.7233
R4 – 0.7253
S1 – 0.7159
S2 – 0.7139
S3 – 0.7122
S4 – 0.7104