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Aussie holds steady after neutral statement

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Aussie holds steady after neutral statement

The Australian dollar edge higher on Tuesday despite an interest rate cut by the Reserve Bank of Australia, which reduced the bank borrowing rate to the lowest level in recent history.  US yields continued to grind higher on Tuesday, reflecting the perception of solid growth which has been evident in the recent purchasing managers’ report.

The Reserve Bank of Australia as expected but their benchmark interest rate by 25 basis points to 2.50%.  The statement, which followed the decision, was not as accommodative as market analysts had expected which helped the AUDUSD gain ground. The next RBA meeting is September 3, a few days before the election.  Although the market is only placing a slim chance of a cut at this meeting, a 25 basis point cut is priced into futures for the fourth quarter.

Separately, Australia reported a smaller than expected trade surplus which reflects a weakening economy, though it was the 4th consecutive monthly surplus.  The house price index rose more than expected, 2.4% in Q2, more than twice what the consensus expected and after the Q1 increase was revised up to 0.8% from 0.1%.  These number do not jive with the RBA’s statement which will likely play out over the coming months.

The currency from down under gain some traction as the statement from the RBA was less dovish than expected.  Momentum on the currency pair seems to be turning with the MACD (moving average convergence divergence) index trajectory moving higher.  The index is flattening and could potential generate a buy signal if price action continues to hold steady.  The RSI (relative strength index) which is an oscillator that measures overbought and oversold levels is printing near 39 which is still on the low end of the neutral range.

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