AUD/USD: RBA and Coronavirus-Scare Subsiding Help Aussie

The Australian dollar was higher against the US dollar on Tuesday afternoon after the Reserve Bank of Australia decided to leave Australian interest rates unchanged and to take a relatively upbeat view on the economy and inflation. Additionally, a general rebound in risk sentiment surrounding the coronavirus-scare added to demand for the Aussie.

AUD/USD was higher by 38 pips (+0.57%) to 0.6731 with a daily price range of 0.668 to 0.673 as of 3pm GMT. Today’s gains have helped the currency pair find a temporary base just beneath 0.67 after falling narrowly by -0.04% on Monday.

The Australian Dollar – RBA decided to keep interest rates on hold

The gains on Tuesday, if maintained will be first daily price gain in five for the Aussie dollar against the greenback. Fears around the coronavirus started to subside on Monday with most of the market losses concentrated in mainland China. Global markets, including China rebounded further on Tuesday.

Keeping interest rates in Australia on hold was largely expected, though there were plenty of reasons to cut them, not least the bushfires and fears over the coronavirus. Instead the RBA took more of a wait-and-see approach. The RBA placed an emphasis on rising houses prices, and it was noted that consumer prices are expected to pick up in the coming months. Both would imply higher interest rates, not lower. The official statement from Governor Lowe said it is reasonable to expect an extended period of low interest rates. This would imply a 0.75% RBA Cash Rate Target for the time being.

The US dollar

Rising same-store sales growth and surveys suggesting better business conditions add to a set of improving US economic data that is propelling the US dollar higher of late. The Redbook index for January rose 5.7% y/y up from 5.3% previously and the ISM-NY Business Conditions Index rose from a dire 39.1 to a more respectable 45.8. On Monday the ISM Manufacturing index pointed to expansion in January after contracting the previous five months. The easing of trade tensions since the US and China singed the phase one trade deal has improved American business optimism.

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