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RBA: Rates to Stay Higher for Longer
The Australian Dollar is trading higher today on the back of the release of the latest RBA meeting minutes overnight. The tone of the meeting was more hawkish than many were expecting and traders were accordingly braced for a hawkish set of minutes today. Indeed, the minutes showed that the decision to keep rates on hold (and not hike) was a close call, with many policymakers worried over the risks of persistently high inflation. In light of the risks from inflation, policymakers saw it as likely that rates would need to stay at higher levels for an extended period of time with a very low likelihood of easing near-term.
Carry Trade & Central Bank Divergence
The Australian Dollar is also being boosted by current USD weakness and the return of JPY selling over the last fortnight. With Fed easing expectations having risen firmly in response to the continued deflationary trend in the US, divergence in traders’ Fed and RBA outlooks is helping drive support into AUD. Additionally, following the massive carry trade unwind we saw at the start of August as JPY strengthened, JPY has been heavily sold again in recent weeks with data showing sizeable hedge fund and institutional selling, which has seen the carry trade being rebuilt. While this current dynamic continues, AUDUSD looks likely to continue higher near-term, particularly if we see a bearish USD reaction to the July FOMC minutes and Powell’s Jackson Hole comments this week.
Technical Views
AUDUSD
The rally in the Aussie has seen the market breaking back above the .6681 level. With momentum studies bullish, the focus is on a continued push higher with .6857 the next hurdle for bulls. A break here would be an important development, marking a break of the range which has lasted since early 2023, turning focus to .7103 as a higher target.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.