AUD: RBA maintains a dovish tone, which weighs down on the AUD

Last week, the Reserve Bank of Australia (RBA) decided to keep its monetary policy unchanged. In effect, this means that the Bank Rate remains at 0.1%, the RBA's lower bound. In addition, the RBA has not changed the yield target for the three-year Australian government bond.

The rise in US yields has led to similar reactions in advanced economies. However, not all central banks are prepared to remain indifferent as the Fed is doing.

This is the case with the RBA, which delivered an ultra-dovish message last month, crushing bond sellers in a desperate attempt to contain rising yields. The problem is that rising yields lead to an unwanted tightening of financial conditions. Even the ECB has mentioned such developments, although the European Central Bank has been more relaxed than the RBA.

The RBA is not wrong, however: the AUD has become one of the strongest currencies during the pandemic. As long as commodity prices continued to rise (gold, copper, etc.), the AUD's strength against its peers did not worry the RBA. But lately, prices in commodity markets have stopped rising and even fallen - not so much the AUD, which is a problem for the RBA.

The RBA issues warning regarding a strong AUD

There are many aspects that a central bank looks at before setting monetary policy. One of these aspects is the exchange rate, with the rate against the USD being the most important.

Traders should remember that the ECB made numerous verbal interventions at the end of 2020, when the EUR/USD reached levels above 1.2290. Without doing anything else to combat the rise, the verbal intervention worked as the euro fell back to 1.17 against the greenback.

The RBA is also known for its verbal interventions in the past. Therefore, the fact that it alluded to the strength of the AUD at this week's meeting should be a warning to the Aussie dollar bulls.

Specifically, the RBA mentioned in its statement that the AUD remains at the upper end of the range of recent years. It is worth noting that central banks are factoring in several years into their statement, which indirectly puts pressure on the AUD pair.

Speaking of AUD pairs, there was little to no reaction to the RBA statement. However, this is not unusual, as even in March, when the RBA made an ultra-dovish statement, the AUD ignored the message.

Will this time be different?