The AUD/USD pair fell by 0.85% in Friday’s session, trading near 0.6700 after the release of the US Nonfarm Payrolls (NFP) report for August. The data showed weaker-than-expected job growth, with 142K new payrolls added, below the 160K estimate. Despite the disappointing NFP report, the Reserve Bank of Australia’s (RBA) hawkish stance suggests that there might not be any imminent rate cuts in the near future, which could provide support for the Australian Dollar.
The economic outlook for Australia remains uncertain, with the RBA taking an aggressive stance to combat rising inflation. Market expectations are currently forecasting a 0.25% interest rate cut by 2024. The monetary policy divergences between the Fed and RBA are becoming more pronounced, indicating limited downside for the Australian Dollar. RBA Governor Bullock’s hawkish stance reinforces the belief that interest rates will remain unchanged in the short term.
The AUD/USD pair has been in a downtrend since early September and is currently testing key support levels around 0.6670. A break below this level could lead to further losses in the coming days. The Relative Strength Index (RSI) is in the negative area and sloping downward, indicating bearish momentum in the market. The Moving Average Convergence Divergence (MACD) is also bearish, confirming increased selling pressure on the currency pair.
Central banks play a crucial role in maintaining price stability in a country or region by ensuring inflation stays close to a target of around 2%. Central banks use their benchmark policy rate, known as the interest rate, to control inflation. By adjusting interest rates, central banks can either tighten monetary policy to control inflation or ease it to stimulate economic growth. Central banks typically consist of a board of members with differing views on monetary policy, known as hawks and doves, who come together to establish a consensus during policy meetings.
Central bank meetings are led by a chairman or president who must create a consensus between hawkish and dovish members on monetary policy decisions. Speeches by the chairman provide insight into the current monetary stance and future outlook of the central bank. Central banks communicate their policy intentions to the market in advance of policy meetings to prevent excessive volatility in interest rates, equities, and currencies. Members of central banks are prohibited from making public statements in the days leading up to policy meetings to avoid influencing market expectations, known as the blackout period.
