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#1 05-08-2020 13:19:32

johnedward
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From: Paris - France
Registered: 21-12-2009
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AUD: the RBA's decision hasn't led to any shift in the Aussie dollar

AUD: the RBA's decision hasn't led to any shift in the Australian dollar


This week, the RBA's (Reserve Bank of Australia) interest rate decision was closely followed by traders. Many expected the RBA to react to the strength of the AUD, which resulted in a steady rise against the USD, NZD and even the JPY.

However, the RBA didn't modify its outlook. After all, judging by its inflation target, consumer price inflation does not warrant any intervention. Deflation threatens to undermine all of it's efforts, but many traders do not see the strength of the AUD holding up in such a low inflation environment.

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No change in monetary policy relative to the RBA

The RBA did not change its monetary policy outlook on Tuesday when it announced its decision. It left the target for the cash rate and the yield on 3-year Australian government bonds unchanged.

However, there are arguments for the RBA's reluctance. And this means that there are advantages to the strength of the AUD.

Firstly, the virus situation seems to be better managed in this part of the world. I'm not just talking about Australia, but the entire South Pacific area has far fewer cases than, say, Europe or the United States.

Secondly, some Asian countries are the only ones in the world that are growing economically this year. For example, China, Taiwan or Vietnam are expected to grow this year. Why? Because they have managed the virus situation better.

Or because they are important markets for Australian exports. A large proportion of Aussie exports go to China. If the latter nation is growing, that's good news for the region and its major trading partners, including Aussies.

That means it is also good news for the AUD. In fact, the AUD was one of the stars on the currency dashboard during the virus situation. It has risen against the dollar to 0.715 versus 0.545, for example. Many will say here that it is the weakness of the USD that is responsible for such strength in the currency pair.

However, one can't ignore the resilience of the Aussies' economy and the better than expected economic outlook in the region. Therefore, the AUD will continue to be supported if it falls.

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