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May 19 - 11:55 PM

AUD/USD - COMMENT-AUD/USD Vulnerable As RBA Out-Doves The Fed

By Krishna K  —  May 19 - 10:22 PM

The Australian dollar risks a selloff towards its April low of 0.7532 as the Reserve Bank of Australia signals a more extended dovish policy stance than the U.S. Federal Reserve, China moves to rein in runaway commodity prices, and investors turn increasingly risk-averse.

Minutes of the Fed's April meeting, which hinted at a possible taper discussion in future should the U.S. economic recovery continue to gain momentum, sent bond yields and the dollar higher on Wednesday nL2N2N628K.

In contrast, the RBA's May meeting minutes clearly indicated that it believes wages need to expand by "sustainably above 3%" to lift inflation into its 2-3% target band nRUAIGEHAP. Annual wage growth was just 1.5% in the first quarter nL2N2N603E, suggesting the RBA remains a long way from exiting its ultra-accommodative policynL8N2MT64V.

Thursday's mixed April jobs data should not change this stance nAZN0QYZ00.

Longer term, Aussie rallies will also be capped by China's moves to stabilise commodity markets; Beijing said Wednesday it will curb "unreasonable" increases in prices, prompting a 7.5% plunge in Dalian iron ore and a 3.2% drop in copper nL2N2N61B1.

Cryptocurrency volatility and the pullback in stock markets on inflation concerns are also negative factors for the Aussie.

An AUD/USD break below the pivotal 0.7670-75 support would open a decline to 0.7585-0.7600 and 0.7532. There is strong resistance at 0.7813-18.

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Refinitiv IFR Research/Market Commentary


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