Forex Market: AUD/USD snaps a three-day winning streak on inflation concerns, RBA keeps rates on hold and maintains bond purchases

AUD/USD snapped a three-day streak of gains on Tuesday as investors were concerned about inflation, rising oil prices and a possible economic slowdown in China, while Reserve Bank of Australia continued with its plan to maintain its bond-purchasing program at a pace of AUD 4 billion per week until at least mid-February 2022.

At the same time, 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.

RBA policy makers said that the timing and pace of Australia’s economic rebound was uncertain and it would depend much on the relaxation of restrictive measures.

“In our central scenario, the economy will be growing again in the December quarter and is expected to be back around its pre-Delta path in the second half of next year,” the central bank said in a policy statement.

“The RBA today stuck to its guns by predicting that rates won’t rise until 2024, but our view that inflation will remain higher for longer means it will happen in early-2023,” Marcel Thieliant, Capital Economics senior Australia & New Zealand Economist, was quoted as saying by Reuters.

On the macroeconomic front, data showed earlier today that Australia’s trade surplus had expanded to a new record high of AUD 15.08 billion in August, as a surge in liquefied natural gas and coal exports more than offset a drop in iron ore prices.

Meanwhile, oil prices registered fresh multi-year highs on Tuesday as OPEC+ members reiterated the group would continue with its current production policy amid a rebound in petroleum demand.

As of 8:54 GMT on Tuesday AUD/USD was inching down 0.07% to trade at 0.7278, while moving within a daily range of 0.7249-0.7294. Yesterday the Forex pair went up as high as 0.7304, which has been its strongest level since September 28th (0.7311). The major currency pair has gained 0.72% so far in October, following a 1.19% loss in September.

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 -20.46 basis points (-0.2046%) as of 8:15 GMT on Tuesday, up from -22.0 basis points on October 4th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7280
R1 – 0.7308
R2 – 0.7332
R3 – 0.7361
R4 – 0.7389

S1 – 0.7255
S2 – 0.7227
S3 – 0.7202
S4 – 0.7178