The results of the Reserve Bank of Australia's October meeting did not impress either the bulls or bears of the AUD/USD pair. The Australian dollar failed to receive support from the RBA, but at the same time, the regulator did not voice too much dovish rhetoric to make it collapse. All the statements have already been expressed by representatives of the Central Bank earlier, so the rhetoric of the accompanying statement was familiar and predictable In general, the October meeting turned out to be insignificant and formal.
Based on the RBA's decision, the key interest rate will be kept at the same level (0.10%), as well as the target level for the yield on government bonds with a due date of April 2024 (10 basis points). At the same time, the Central Bank announced that they would continue to buy government securities at a 4 billion rate per week at least until mid-February next year.
It can be recalled that the RBA postponed the deadline for the next round of revising the bond repurchase program at its September meeting: if earlier, the Central Bank planned to discuss this issue in November, then amid another surge in the coronavirus crisis, it postponed this moment to the beginning of 2022. Before the October meeting, some experts assumed that the regulator would question this time target, pointing to a slowdown in the labor market and a difficult epidemiological situation, which forces the authorities to extend quarantine restrictions in multi-million cities.
However, this dovish scenario was not implemented. As a result, the Australian dollar remained "afloat" at the end of the meeting. As for the fate of the interest rate, traders have no expectations here – this issue will not be put on the agenda before 2024. Therefore, there were also no surprises in this regard.
Commenting on the current situation in the accompanying statement, the regulator voiced a cautiously optimistic position. According to RBA members, the slowdown in economic growth in Australia will be temporary "as the number of vaccinations continues to increase and restrictions are lifted, key economic indicators will recover." At the same time, the Central Bank did not focus on the frankly disastrous August data on the growth of the Australian labor market (the increase in the number of employed fell by 146 thousand: this indicator went into the negative zone for the first time since April of this year). This fact allowed us to assume that the regulator will not rush with the dovish decisions about the fate of the incentive program. In other words, the RBA's QE plans announced in September are still in force.
The Australian dollar actually ignored the Reserve Bank's October meeting. Moreover, the AUD/USD pair showed an upward correction, rising to the borders of 0.73 level. But on Wednesday, the US dollar returned AUD/USD buyers below, reminding them that the Australian one is moving only on the wave of the US currency. Dollar bulls have organized another offensive throughout the market amid an oil rally, an increase in the yield of treasuries, an increase in inflation expectations, and the "hawkish" intentions of several Fed representatives (in particular, James Bullard, Patrick Harker). The ongoing problems in supply chains only complement the overall fundamental picture. All these factors combined have increased the attractiveness of the US dollar, which has become in high demand again.
It also became known that Democrats and Republicans in the US Senate still came to a compromise on the issue of the national debt. Senators will raise the national debt ceiling for two months "by the amount necessary to cover current expenses." As the leader of Republicans in the Senate, Mitch McConnell noted that this time will be more than enough for the adoption of separate legislation on debt limitation. The leader of the Democrats in the US Senate, Chuck Schumer, also said today that negotiators have made progress on resolving the impasse over the debt ceiling. He announced that congressmen will be able to come to an agreement by tomorrow morning. In other words, the drama, which unfolds almost every year in the US Congress, is coming to an end.
For the last three weeks, the AUD/USD pair has been trading in the 100-point price range. Buyers cannot consolidate in the area of the 0.73 mark, while sellers fail to hold their positions in the area of the 0.71 mark. Nevertheless, the general fundamental background is in favor of the US dollar, primarily due to the increased divergence of the monetary policy rates of the RBA and the Fed. Therefore, short positions are still a priority for this instrument.
From a technical point of view, the AUD/USD pair on the D1 timeframe is located in the Kumo cloud, on the middle line of the Bollinger Bands indicator. The nearest support level (the first downward target) is at the level of 0.7245 (the lower border of the cloud coinciding with the Tenkan-sen line). The main target is located below, namely at 0.7170 - this is a local price low that coincides with the lower line of the Bollinger Bands indicator on the same timeframe.
