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Australian Dollar Spikes Up As RBA Holds Rate, QE Steady

australiandollar may07 06oct20 lt

The Australian dollar drifted higher against its major trading partners in the Asian session on Tuesday, after the Reserve Bank of Australia kept its cash rate and quantitative easing program unchanged and signaled the likelihood of more monetary easing to boost the economy.

The board of Reserve Bank of Australia, governed by Philip Lowe, decided to maintain the cash rate and the targeted yield on three-year government bonds of 25 basis points.

The board also retained the parameters for the expanded Term Funding Facility.

The bank said it will maintain highly accommodative policy settings as long as is required and will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2-3 percent target band.

"The Board continues to consider how additional monetary easing could support jobs as the economy opens up further," the bank said.

The Australian government is set to deliver the budget for the 2020-21 financial year later today.

Economists predict the government to forecast a record budget deficit of around A$200 billion for 2020 as it attempts to kickstart the economy amid the coronavirus pandemic.

The government is expected to announce more stimulus measures including tax cuts and higher spending to create jobs and reduce unemployment.

Risk sentiment was supported by optimism about additional U.S. stimulus and President Donald Trump's discharge from hospital after treatment for the Covid-19.

Data from the Australian Bureau of Statistics showed that Australia recorded a seasonally adjusted merchandise trade surplus of A$2.643 billion in August.

That was shy of expectations for a surplus of A$5.154 billion and was down from A$5.607 billion in July.

The aussie was higher on Monday, as U.S. political uncertainty reduced after President Donald Trump's medical team suggested that he could be discharged from the hospital on Monday. It climbed 0.3 percent against the greenback, 0.6 percent against the yen and 0.2 percent against the kiwi for the day.

The aussie appreciated to a 5-day high of 0.7209 against the greenback, up by almost 0.5 percent from a low of 0.7171 seen at 5:30 pm ET. The AUD/USD pair had ended Monday's trading session at 0.7179. Immediate resistance for the aussie is likely seen around the 0.75 level.

The Australian currency gained 0.4 percent against the yen, rising to over a 2-week high of 76.17. The pair was valued at 75.87 at Monday's close. Next immediate resistance for the currency is likely located around the 78.00 level.

The aussie reached as high as 1.6363 against the euro, climbing 0.2 percent from Monday's closing quote of 1.6400. Further rally in the currency may challenge resistance around the 1.62 level.

The aussie added 0.3 percent to touch a 5-day high of 1.0831 against the kiwi, after depreciating to 1.0794 at 5:00 pm ET. The aussie was trading at 1.0801 per kiwi when it finished deals on Monday. The aussie is seen facing resistance around the 1.10 level.

The aussie recovered by 0.3 percent to 0.9548 against the loonie, following a 4-day decline to 0.9513 at 5:00 pm ET. At yesterday's New York session close, the aussie-loonie pair was worth 0.9520. The aussie may target resistance around the 0.98 level.

Looking ahead, German factory orders for August are due at 2:00 am ET.

German and U.K. construction PMIs for September will be released in the European session.

U.S. and Canadian trade data for August will be out in the New York session.

European Central Bank President Christine Lagarde is due to participate in a virtual panel discussion at an event celebrating the 10th anniversary of the European Stability Mechanism at 9:00 am ET.

At 10:40 am ET, Federal Reserve Chair Jerome Powell will deliver a speech about the US economic outlook at the National Association of Business Economics annual meeting, via satellite.

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