AUD/USD: what's new with the AUD?

The AUD continues to hold above the 0.7 level against the USD and trades very little or not at all. The highest it reached during the virus situation was just above 0.7395, due to the Fed's efforts to improve the USD's lack of liquidity in the international financial system.

Monetary policy is the sum of the actions of central banks (and sometimes governments as well) that influence the money supply and credit in an economy. In doing so, central banks try to influence households and businesses to save or consume. Thus, when the central bank perceives that the economy is overheating, it tries to stimulate savings. When the opposite happens in the economy, central banks stimulate consumption.

The RBA (Reserve Bank of Australia) sets monetary policy every first Tuesday of the month. Last Tuesday, the bank reassessed the direction of its monetary policy and reinforced its willingness to do more to stimulate economic recovery.

RBA decision on spot interest rates - A non-event for the markets

Financial markets are trading in a narrow range due to the upcoming Trump-Biden election. As a result, any market reaction to other economic news will likely be quickly tracked or ignored until the election is behind us.

Last week, the RBA decided to leave the liquidity rate unchanged. It did the same with the Term Funding Facility (i.e. Australian Quality Assurance) and the yield on 3-year Australian Government bonds.

The bank noted that while the 6.9% economic contraction in early summer affected economic performance, the decline was less severe than in other parts of the world. In addition, the fiscal stimulus put in place is expected to continue, as well as the favourable financing conditions offered by the RBA.

The biggest challenge and problem for the RBA is unemployment. The bank is ready to do what it can to protect jobs and, as such, is prepared to maintain a very accommodating policy framework.

Patience is one of the qualities a trader needs most. Without patience, the trader risks over-trading simply because the markets are open.

When considering central bank decisions and trading on the basis of the outcome, this means that fundamental analysis is at the heart of the trading decision. But fundamental analysis takes time.

That's why anyone who wants to trade the AUD, regardless of direction, should not look at what the RBA does or does not do. Rather, they should watch what the stock market in the United States is doing, which is moving in line with what the U.S. presidential election is suggesting.