The Reserve Bank of Australia (RBA) left the monetary policy unchanged, triggering a move lower in the Australian dollar (AUD) pairs. Is it safe to buy the AUD/USD pair after the RBA’s statement?
The RBA’s monetary policy decision is just the first one in a trading week dominated by central banks’ interventions. The RBA decided to keep the monetary policy unchanged, even though central banks start to remove their stimulus in the wake of rising inflation.
Yet, the RBA maintained the cash rate target at 10 basis points. In addition, it announced that it will keep buying assets under its quantitative easing program worth AUD$4 billion/week until February 2022. The Australian dollar dropped more than half a percentage point on the news, and the move lower was particularly intense in the AUD/USD pair.
The AUD/USD is the most important Australian dollar pair, and it is significantly correlated with the U.S. equity markets. Typically, only when the central bank diverges from what the market participants expect, the AUD/USD pair reacts.
What does the AUD/USD technical picture say?
The AUD/USD pair found strong resistance at the 0.7550 area, and got rejected after what seems like a double top pattern. A double top is a reversal pattern, and the price is rejected at a horizontal area. In this case, the 0.7550 area acted as resistance, and the price struggles now at 0.7450 support.
From a technical perspective, a daily close below 0.7450 would signal more downside because the market broke the series of higher lows.
Can the AUD/USD reverse on the Fed’s decision?
The main event of the trading week is still ahead of us, and the AUD/USD pair can easily reverse the losses. The Federal Reserve of the United States (Fed) is set to deliver its monetary policy decision too, and the market expects that the Fed will announce the tapering of its asset purchases.
Note the divergence between the two policies. On the one hand, the Fed is set to announce the tapering, and on the other hand, the RBA has no intentions to do so. Therefore, the divergence between the two policies may further weigh on the AUD/USD pair.
To sum up, the way the Fed chooses to communicate its decision and the way the market interprets it is decisive for the AUD/USD for the rest of the trading week.