Panoramic view of Sydney Harbour. Image source: jovannig © 123RF.com
The Reserve Bank of Australia was the first major central bank to hold its regular monetary policy meeting earlier today, in a week that is going to be packed with such events.
Unsurprisingly, the Monetary Policy Committee (MPC) of the RBA decided to refrain from changing the Cash Rate, which remains at 0.25 per cent.
In addition to the near-negative interest rate, the Committee also stated that it would not be adjusting its underlying monetary policy for the time being, with the scale and timing of its asset-purchasing program remaining unaltered from its previous meeting in early-May.
Overall, Governor Lowe sounded optimistic in regards to the undergoing recovery of the Australian economy, referring to the falling numbers of infected cases. He also hinted that the breadth of the economic hit might be less than initially feared, which is welcoming news.
"it is possible that the depth of the downturn will be less than earlier expected. The rate of new infections has declined significantly, and some restrictions have been eased earlier than was previously thought likely. And there are signs that hours worked stabilised in early May, after the earlier very sharp decline. There has also been a pick-up in some forms of consumer spending."
However, Governor Lowe also stressed that the dangers to the Australian economy from the coronavirus fallout remain due to the prevalent uncertainty stemming from the pandemic.
The consumer confidence in Australia has rebounded sharply in May nearing pre-crisis levels, which represents the unexpected positive developments in relation to the broader recovery process.
Australia Consumer Confidence. Image source: TradingEconomics.com
While stable consumer confidence is one of the crucial prerequisites for securing sustained growth, it cannot guarantee wholesome recovery by itself. Even so, it underlines the sweeping optimism amongst investors and traders that is currently driving the rally on the Australian dollar.
As can be seen on the 4H chart below, the Aussie has been advancing against the greenback in a solid bullish trend. In late-March, the current bullish run commenced in the immediate aftermath of the coronavirus crash.
While the massive liquidity that has been extended from the RBA, to ensure the continued functioning of the financial system during the crisis, would eventually weigh down on the Aussie, at present it compels traders to bet on the continuation of the rally.
Given the prevailing bullish momentum, the price action is likely to attempt to break out above the upper boundary of the ascending channel presented below, and by doing so, to continue heading further north.
If this momentum gets exhausted, however, a minor bearish correction could reach one of the following Fibonacci retracement levels before it finds the necessary support.
AUDUSD 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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