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RBA Hints At Further Rate Cuts, Aussie Declines -

May, 06th 12:31

The Australian dollar witnessed a strong drop after the Reserve Bank of Australia (RBA) released its Quarterly Statement on monetary policy, which hints at further rate cuts in the future.

In the quarterly report, the central bank said that it expected the underlying inflation to be 1 or 2 percent in 2016, which is 2-3 percent below the medium term target.

On Tuesday, the bank had cut the benchmark interest rate by 25 basis points to a record low of 1.75%, following a surprisingly weak inflation rate for the first quarter. After that, the Australian dollar witnessed a drop to as low as 0.75432 against the US dollar. Many analysts expect that the RBA could lower the rate another 25 basis points to the all-time low of 1.5% at the August policy meeting.

On Friday, the US dollar went down against the basket of major currencies but is still on course towards weekly gains ahead of the non-farm payrolls report. The number of employed people in the US is expected to rise in April, suggesting a healthy labor market. However, due to better labor market conditions, the large number of returning job seekers are reinforcing the cautiousness of  the Fed with regards to a rate hike this year.

Non-farm payrolls are forecast to rise by 202,000 in April after the 215,000 gain the month before, while the unemployment rate is expected to be 5.0%.

The dollar index, measuring the strength of the US dollar against a basket of major currencies, rose about 2% from the lowest level since January at 91.919, registered earlier this week.

AUDUSD

Fig. AUDUSD D1 Technical Chart

The Australian dollar dropped significantly against its American counterpart today. A selling position is encouraged for the pair AUDUSD as seen in the red SAR arrow above the price movement. RSI seems to be hitting the oversold zone as it is pointing down wards from the current level of 35. The price is anticipated to test the support level at 0.72449, created on February 4, 2016.

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