Synopsis:

Société Générale assesses the impact of the Reserve Bank of Australia's (RBA) latest policy decisions on the AUD/USD exchange rate, emphasizing the Federal Reserve's more significant role in influencing the currency pair's movements.

Key Points:

• RBA's Limited Influence: The recent RBA meeting highlights its limited impact on the AUD/USD, with the currency's future largely tethered to actions taken by the U.S. Federal Reserve.
• AUD/USD Trading Range: The AUD/USD has been confined within a USD 0.63-0.69 range over the past year, closely mirroring a stable 5-year yield differential between the U.S. and Australia.
• Yield Differential Significance: Significant shifts in AUD/USD are contingent on the yield differentials; a move towards AUD/USD 0.7 would require Australian yields to exceed those in the U.S., whereas a potential dip below 0.60 would need U.S. yields to be over 1% higher than Australian yields.
• External Economic Factors: A sluggish recovery in China and subdued Australian export prices provide little domestic support for the Australian dollar, placing greater emphasis on U.S. economic policies and the Fed's decisions.

Conclusion:

While SocGen maintains a positive long-term outlook on the Australian dollar, they underscore that its near-term fate is more closely tied to U.S. monetary policy rather than domestic factors. With the AUD/USD currently stuck in a narrow range, investors and traders are advised to keep a close eye on Fed actions and broader U.S. economic indicators.