The Australian currency intends to strengthen its position. Against this background, experts record a slight decline ahead of the meeting of the Reserve Bank of Australia (RBA), however, they believe that these difficulties are temporary.
Most market participants expect that the regulator will keep the interest rate at the current level after the meeting, since it can be recalled that the RBA did not change anything in the existing monetary policy at the last event held in early August. The Central bank also left the key rate and the yield's target level on three-year government bonds at an extremely low level of 0.25%.
According to the regulator, the economic support program launched in Australia since mid-March this year is showing positive results. The country's economy is gradually recovering, so a soft monetary policy is still relevant for the RBA, according to Philip Lowe. Now, to support Australia's economy, rates will remain low as long as necessary.
According to analysts, we should not expect surprises from the regulator for today's meeting, since RBA's current policy is likely to remain unchanged. If this scenario comes true, the Australian dollar can strengthen and remain stable in the future. At the same time, the AUD/USD pair may enter an upward trend, pushing the weakening US dollar. However, this pair showed no signs of recovery on Tuesday morning. It traded around the range of 0.7408-0.7409, moving slowly in the low range.
Moreover, many experts are positive about the prospects for the AUD. The leading analysts at Westpac Bank expect it to reach another peak (0.8000) by the end of 2021, although it is still far off. Earlier, the bank predicted AUD to grow to 0.7500 by the end of 2020.
According to experts, two major factors contribute to the further strengthening of the AUD: the rise in oil prices and US Fed's current policy. The indicated currency, being a raw material means of payment, is sensitive to changes in the hydrocarbon market. Thus, analysts emphasize that the rise in oil prices is favorable for the "Aussie".
The updated strategy of the Fed related to inflation targeting also supported the potential and current growth of the AUD. It weakens the US dollar to some extent, giving way to other dollars, in this case the Australian one. From this combination of factors, experts say that the AUD/USD pair remains a winner. Westpac considers that the AUD can reach the 0.8000 target.
Along with the strengthening of the Australian dollar, markets expect the US dollar to weaken. This is facilitated by the Fed's transition to an average inflation target of 2% and an update of the US labor market criteria for full employment. If the current situation continues, as well as the existing key rate of the RBA, the Australian dollar is not in danger of collapsing. On the contrary, experts expect it to grow steadily.
Currency market strategists believe that the regulator will help it to continue the upward trend. However, the surprise factor is not excluded, if the RBA still decides to change the current policy. Analysts warn that the tendency to tighten it will provoke a sharp strengthening of the AUD. In case of strengthening of the "dovish" rhetoric of the regulator and further easing of monetary policy, it can instantly go into a downward spiral. Nevertheless, experts are counting on AUD's smoother dynamics and RBA's balanced decisions.
