Forex Market: AUD/USD rises on greenback weakness, upbeat data, RBA keeps policy settings unchanged

AUD/USD rose on Tuesday despite that the Reserve Bank of Australia kept policy settings without change and reiterated that monetary conditions would remain accommodative until at least 2024. The pair benefited mostly from US Dollar’s weakness, as the greenback was hovering just above 4 1/2-month lows against a basket of six major peers.

An additional boost for the Aussie came after the recent string of macro data showed Australia had recorded a record-high surplus of AUD 18.3 billion on its current account during the first quarter of 2021. In comparison, a consensus of analyst estimates had pointed to a surplus of AUD 17.9 billion.

The RBA official cash rate was kept intact at a record low level of 0.10% during the bank’s policy meeting earlier on Tuesday, in line with market expectations.

Additionally, the central bank’s three-year bond yield target was left without change at 0.10%, while it said that it would decide in July whether the yield target would be rolled over from the April 2024 bond to the November 2024 maturity.

According to analysts, a move not to roll over the bond yield target could be considered by market players as an early signal of policy tightening. Still, the market is not pricing a rate hike until early to mid-2023.

“The RBA still sounded dovish at today’s meeting, paving the way for another A$100bn extension of its bond purchase program next month,” Marcel Thieliant, a senior economist at Capital Economics, was quoted as saying by Reuters.

Meanwhile, the RBA said that it expected jobs, inflation and wage pressures to remain subdued. CPI inflation is expected to rise temporarily above 3% during the second quarter, mostly due to a reversal of some pandemic-related price reductions.

As for GDP growth, the RBA said it expected Australian economy to expand by 4.75% in 2021 and by 3.5% in 2022, supported by fiscal measures and highly accommodative monetary conditions.

As of 8:34 GMT on Tuesday AUD/USD was edging up 0.14% to trade at 0.7740, after earlier touching an intraday high at 0.7768, or its strongest level since May 26th (0.7796). The major currency pair gained 0.26% in May, following another 1.53% surge in April.

In terms of economic calendar, today market players will be paying attention to the final data on US manufacturing sector activity for May by Markit Economics due out at 13:45 GMT as well as to the May report on manufacturing sector conditions by the Institute for Supply Management due out at 14:00 GMT.

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 -9.05 basis points (-0.0905%) as of 8:15 GMT on Tuesday, down from -6.6 basis points on May 31st.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7724
R1 – 0.7747
R2 – 0.7764
R3 – 0.7788
R4 – 0.7811

S1 – 0.7706
S2 – 0.7683
S3 – 0.7665
S4 – 0.7648