AUD lower on future inflation

IronFX: RBA stands pat and maintains its neutral tone The RBA held its policy steady at its last meeting for the year as was widely expected, and maintained an overall neutral bias in the statement accompanying the decision.

Policymakers noted that the previous reductions in the cash rate will provide some additional support to demand and enhance the prospect of inflation returning to target.

The Board also judged that by keeping rates unchanged there are reasonable prospects for achieving sustainable growth in the economy with inflation returning to the medium-term target over time.

Once again there were no clear signs in the statement to suggest that further rate cuts may be looming in the foreseeable future and as such we have to wait for the economic data to paint a clearer picture of were the Bank may stand when it holds its first gathering for 2017, on February 7th.

The Aussie slid somewhat on the decision, perhaps as the officials noted that an appreciating currency could complicate economic transition.

We prefer to stand pat with regards to the Australian dollar heading into the New Year, and we would expect any near-term trends in Aussie crosses to be triggered mainly by its counterparts.

We would expect AUD to continue over-performing the wounded JPY, but I would stay mindful with regards to its US counterpart. AUD/USD traded lower yesterday after it hit resistance once again near the psychological zone of 0.7500 (R1), and following the RBA gathering it tested our support hurdle of 0.7440 (S1).

Given that the broader trend of the currency pair appears to be negative, I would treat the recovery started on the 21st of November as a corrective phase.

A clear break below 0.7440 (S1) could initially aim for the 0.7410 (S2) level, where another dip is likely to confirm my view that the recent recovery was just a correction and may set the stage for the 0.7365 (S3) obstacle.

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