The main news in the forex world yesterday, was that the RBA decided to keep interest rates on hold.
There had been plenty of speculation recently that the RBA would cut at this meeting and futures markets were pricing in a realistic chance of that happening. However, it wasn’t to be and the news of a rate hold sent the AUD/USD rallying sharply higher.
After the news, price ran back into 0.7050, which has been an area that it hasn’t been able to break for some time. Overnight though the sentiment of the day took over and drove risk assets lower, along with the Aussie. The Aussie finished the session back down to around the 0.7000 mark. In early trade today it has recovered somewhat.
The other side of the coin is clearly the US-China trade wars and what that will mean for risk assets.
Clearly, it has taken a few days for the impact to fully be realised on financial markets, but yesterday Wall Street well and truly started pricing in a deal not going ahead as quickly as it had been hoped. In reality, markets had been assuming it was a done deal.
This meant that the safe havens saw buying, which includes the USD, but more so risk assets got sold hard.
The RBA has since come out and said that employment will need to strengthen and the 5 per cent jobless rate gradually fall, to lift inflation to prevent a future interest rate cut. Previously the RBA had noted a sustained rise in the jobless rate would be required.
So what that effectively means is that bar is now lowered for a cut in the future and that should weigh on the AUD/USD going forward.
To me, we now have two major factors that will weigh on the Aussie in the coming months, that should see price head back below 0.7000.