The AUD/USD pair has continued its downward trend, falling below 0.6730 on Tuesday due to profit booking by investors. However, the Australian Dollar has shown resilience against the USD, partly due to the divergence in monetary policy between the Federal Reserve and the Reserve Bank of Australia. The RBA’s reluctance to lower interest rates despite signs of economic weakness has supported the AUD, making it one of the last G10 central banks to potentially cut rates.
Investors are eagerly awaiting the Australian Employment data to be released on Thursday, which is expected to show an increase in job seekers finding employment in June. If the unemployment rate remains steady at 4.0%, it could signal a strong labor market that may prompt the RBA to consider tightening its policy stance. On the US data front, retail sales figures remained flat but were revised upwards, while market pricing indicates a higher chance of an RBA rate hike in September or November compared to a rate cut by the Federal Reserve.
Technically, the AUD/USD pair is in a consolidation phase after a recent correction following a strong rally in July. Despite the losses, the overall outlook remains positive with support levels identified at 0.6680 and 0.6650. The pair has maintained levels not seen since January, and indicators such as the RSI and MACD have approached overbought territory, prompting the correction.
Central banks play a vital role in maintaining price stability in a country or region by adjusting their policy rates to control inflation or deflation. The Federal Reserve, European Central Bank, and Bank of England are among the major central banks with a mandate to keep inflation close to 2%. By manipulating their benchmark interest rates, central banks can tighten or ease monetary policy to stimulate or restrain economic activity. Central banks are typically politically independent, with members of the policy board having different views on monetary policy, categorized as ‘doves’ or ‘hawks’ based on their stance on interest rates and inflation.
Central bank policy decisions are made by a chairman or president who seeks to create a consensus among members and communicate the monetary stance and outlook to the public. Speeches by the chairman are closely monitored by the markets for hints of future policy changes. Central banks aim to avoid causing undue volatility in the financial markets by carefully managing communication around policy meetings and entering a blackout period before decisions are announced. Overall, central banks play a crucial role in shaping the economic landscape through their monetary policy decisions.
