Australian Dollar Bulled Despite Rates Unchanged

Market’s expectation of a strong GDP data tomorrow may see AUD push up higher, Long AUD/USD?

RBA kept rates at record low of 1.5% for the 20th consecutive meeting. Despite 1st quarter data stronger than expected economic growth, sluggish wage growth and inflation was the determining factor. Major banks and markets are pushing back the pricing of interest rates to May 2019. During this morning monetary policy statement, RBA Governor Phillip Lowe noted,” the housing markets in Sydney and Melbourne have slowed.” 

Even though rates remained unchanged and RBA did not seem ready to hike rates anytime soon, Australia’s economy is doing well in a low interest-rate environment. The low interest-rate environment has led to cheaper loans, help the economy by reducing exchange rate because of reduced overseas investor cash inflows and help push for an increase in housing prices. 

However, there are a few reasons why we feel that Australian dollar is bullish:

• Market are pricing in a better than expected GDP results tomorrow as 1st quarter data was stronger than expected
• Shanghai stocks rallied by 0.4% this morning as the nation is including more securities in its MFL lending program which is seen as negative to China bonds. The upbeat mood in Chinese stocks can be positive to the Australian currency. 
• RBA found that overall, the financial conditions in Australian remained expansionary and they expect inflation to be above 3% in 2018-2019, beating expectations of the May budget.
• AUDUSD has broken up higher and 0.7620 price region seemed to be holding well. This pair also happens to be sitting on the Fibonacci retracement line of 61.8%. We expect more upside to come as long as 0.7600 holds.