Forex Market: AUD/USD hits a fresh one-month high as RBA expects “above-trend” economic growth this year

AUD/USD, a liquid proxy for risk, extended yesterday’s gains and registered a fresh one-month high on Tuesday, after the minutes from the Reserve Bank of Australia’s meeting in April revealed policy makers expected a stronger economic rebound from the coronavirus pandemic. Rising commodity prices provided additional support.

The RBA said that it expected an “above-trend” economic growth in both 2021 and 2022, as household and business balance sheets, overall, remained in good shape and this was likely to underpin spending.

“Preliminary data suggested that GDP in March quarter was likely to have recovered further to around its pre-pandemic level, earlier than previously expected,” the RBA minutes stated.

The central bank also reiterated that policy would remain accommodative until at least 2024 when actual inflation in Australia is sustainably within the target range of 2%-3%.

Meanwhile, commodities such as iron ore extended price gains on Tuesday due to improved steel profit margins in China, a key steel producer.

“The solid economic rebound in Australia, improving global economic outlook and elevated commodity prices all suggest AUD can lift above 0.80 in coming months,” Commonwealth Bank of Australia strategists wrote in an investor note.

Analysts at Australia and New Zealand Banking Group expect the Aussie dollar and other risk-sensitive currencies to benefit in a medium term from a global economic recovery.

“We expect global growth to recover as vaccines are rolled out, which should in turn be good for Asian growth,” they pointed out in a note.

As of 8:35 GMT on Tuesday AUD/USD was gaining 0.59% to trade at 0.7799, after earlier touching an intraday high at 0.7816, which has been its strongest level since March 18th (0.7849). Last week the Forex pair appreciated 1.51%, or its best weekly performance since early November 2020. The major currency pair has gained 2.78% so far in April, following a 1.45% drop in March.

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 -8.9 basis points (-0.089%) as of 8:15 GMT on Tuesday, down from -8.5 basis points on April 19th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7748
R1 – 0.7790
R2 – 0.7826
R3 – 0.7868
R4 – 0.7910

S1 – 0.7712
S2 – 0.7670
S3 – 0.7634
S4 – 0.7597