The AUD/USD is inching lower early Tuesday after the Reserve Bank of Australia left the official cash rate on hold at its historic low of 1.5 percent for the 14th month in a row.
“Growth in housing debt has been outpacing the slow growth in household incomes for some time,” RBA Governor Philip Lowe said in his statement.
“Following some tightenings in credit conditions, growth in borrowing by investors has slowed a little recently. In Sydney, where prices have increased significantly, there have been further signs that conditions are easing.”
The decision to keep rates on hold at October’s monetary policy board meeting was widely predicted by economists and experts, with most predicting rate hikes some time in the middle of next year or later.
In other news, CoreLogic data for the month of September showed Sydney prices falling for the first time in 17 months, while home prices across Australia’s other capital cities edged only marginally higher.
Australian Building Approvals came in below expectations at 0.4%. The previous month’s report was revised upward to -1.2%. HIA New Home Sales came in at 9.1%, well above the previous -3.7% read. ANZ Job Advertisements came in flat.
The NZD/USD is also under pressure with sellers taking out last week’s low at .7166.
Forecast
The RBA’s monetary policy statement contained no surprises so investors are likely to shift their focus back to rising U.S. Treasury yields and increasing expectations for a Fed rate hike in December.
Technical factors are also playing a role in the price action. The AUD/USD is in a position to challenge a major retracement level at .7782. Taking out this level could trigger an acceleration to the downside. The selling in the NZD/USD could also increase with potential targets at .7130 and .7100.
It’s a light day in the U.S. on Tuesday with Federal Open Market Committee Member Jerome Powell scheduled to speak.
In late August, Federal Reserve Governor Jerome Powell said he couldn’t quite explain why inflation was running below the central bank’s 2 percent target.
“Inflation is a little bit below target, and it’s kind of a mystery,” Powell said on CNBC in a live interview from Jackson Hole, Wyoming, where central bankers were gathered at an annual meeting.
“You would have expected given that we’re getting tighter labor markets that we’d have a little higher inflation,” he said. “I think that what that gives us is the ability to be patient” regarding future rate hikes.
Although the AUD/USD and NZD/USD may be ripe for counter-trend short-covering rallies due to short-term oversold conditions, I can’t see the Aussie showing any signs of strength unless it can overcome .7847. And it is extremely vulnerable under .7782.