Some Gains for the Aussie Dollar After the RBA Unexpectedly Holds

The Australian dollar was quite active in the week ending 11 July, as the Reserve Bank of Australia (‘the RBA’) met on Tuesday, 8 July, and went against expectations by leaving rates unchanged. This article looks at the context of the RBA’s decision and then briefly analyses the charts of AUDUSD and AUDJPY.

Despite the wide consensus that the RBA would cut its cash rate to 3.6% on 8 July, the bank kept it at 3.85% with six votes in favour and three dissenting. The RBC pointed to a lack of evidence that inflation has returned to target sustainably:

Australian annual headline inflation in the first quarter stayed at 2.4% while expectations had suggested a slight decline to 2.3%. As in various other countries around the world, a significant part of the upward pressure on inflation came from electricity. While there has been significant progress in reducing inflation and 2.4% is the lowest since the first quarter of 2021, it’s still fairly far from being 2% consistently, so the RBA’s caution seems justified and in line with recent comments from most other major central banks.

The RBA also cited a strong job market as a reason not to cut rates at its last meeting:

While there doesn’t seem to be any directional trend for the rate of unemployment, having been static since the beginning of the year at 4.1%, this is a historically low figure. Pre-Covid, unemployment in Australia was holding at or above 5%. The current figure is less than 1% higher than the record low of 3.4% from October 2022. The RBA is likely to be looking for a sustained rise in the rate of unemployment or other clear signs of a weakening job market to have more confidence to cut rates further.

Australia’s economy and currency are generally trade sensitive because the country’s exports feature a large chunk of raw materials, so disruptions to trade can cause headwinds for the Aussie dollar. That hasn’t happened very consistently in the latest round of news about tariffs. Even though there’s only one confirmed trade deal, markets are generally discounting the most negative scenarios. Donald Trump’s notoriously poor policy discipline now has a new name, ‘TACO’, short for ‘Trump always chickens out’. However, if Mr Trump, for some reason, doesn’t chicken out early next month, there might be a significant hit to the Aussie dollar.

AUD/USD Reaches Six-month Highs

8 July’s surprising hold by the RBA helped the Aussie dollar to recover lost ground against its American counterpart and push up to a new high. Sentiment seems to be mostly discounting the American governments announcements about upcoming tariffs while underlying data from Australia are somewhat positive or at least certainly not as negative as had been expected around the beginning of the year.

The 61.8% weekly Fibonacci retracement around 65.5c still seems to be a main technical reference because the price hasn’t decisively broken beyond this area yet. With extremely low volume compared to peaks in early April, ATR reaching new lows, the slow stochastic close to overbought and momentum from the chart seemingly lower, there’s a real possibility that the trend might change and the price try to push lower. The value area between the 20 and 50 SMA, around 65c, and particularly the 50 SMA itself, looks like possibly important support in the short term.

If the uptrend continues, the next strong resistance isn’t obvious. 67c is the area of the 200 SMA on the weekly chart but that’s still quite a long way off. Equally, the price might consolidate in the runup to American inflation on Tuesday 15 July.

AUD/JPY Continues Vigorously to Five-month Highs

The yen has declined in most of its widely traded pairs in recent days as trade tension between the USA and Japan escalated again. JPY’s appeal as a haven appears to be lower compared to the situation early last quarter. Meanwhile, the RBA unexpectedly held its cash rate on 8 July. Although the BoJ is fairly likely to hike to 0.75% at the end of July, it seems unlikely the differential in rates for AUDJPY will go below 2% for the foreseeable future.

Much like AUDUSD, volume and ATR have declined significantly here and the stochastic signals overbought, but the shape of the chart is quite different and the latest high was accompanied by a significant uptick in momentum. The 50% weekly Fibonacci retracement around ¥97.70 is an obvious possible resistance.

A sustained move lower seems less favourable based on the current situation of both fundamentals and the chart. The 38.2% Fibo slightly below ¥95 might now flip to being an area of support. However, there’s a significant amount of important data for AUDJPY coming out in the next few days: Australian consumer confidence on 15 July, then Japanese balance of trade and inflation on 17 and 18 July, respectively. Surprising results might significantly change the technical picture.

The opinions here are personal to the writer; they do not represent the opinions of Exness or FX Empire. This is not a recommendation to trade.

This article was submitted by Michael Stark, an analyst at Exness.