RBA rate cut fails to curb Aussie gains, Fed likely has more leverage

At its monetary policy meeting on August 2, the Reserve Bank of Australia (RBA) lowered interest rates. The Aussie saw momentary dips, but has then continued its upside trajectory. The strong Aussie remains an important aspect for the RBA. Despite rate cuts, the RBA was unable to reverse the currency effect.

AUD/USD dropped to 100-day SMA important support after RBA announced a rate-cut, but then managed to recovery quickly. The pair jumped to a 3-week high level after RBA’s monetary policy statement, released earlier on Friday, failed to provide any clues of further easing.

The appreciation of the Aussie since the start of the year is mainly due to the fact that the FX market has priced out Fed rate hikes. The antipodean currency remains sensitive to changes in the growth outlook, commodities and “monetary policy decisions in Australia or elsewhere”.

Markets are hoping that the US labour market report due today in the NY session will finally provide a signal as to what the US economy looks like. Following the surprisingly weak US GDP data for Q2 last Friday, disappointment dominates. Rate expectations were lowered further and would probably take the Fed a whole series of good data to reconsider a rate hike.

"The RBA will probably have to accept higher AUD levels until a Fed rate hike becomes more likely again," said Commerzbank in a report.