AUD/USD barely moves as RBA's Lowe says exchange rate broadly in line with fundamentals
- AUD/USD continues to trade in the green near 0.7025 after Lowe's speech.
- RBA's governor said that the Aussie dollar is trading broadly in line with the fundamentals.
Ever since the AUD/USD pair broke above 0.70 in the first half of June, speculation has been doing the rounds that the Reserve Bank of Australia (RBA) would talk down the Aussie dollar.
After all, the Aussie dollar has rallied by 1,500 pips since bottoming out near 0.55 during the height of the coronavirus crisis in mid-March. A sustained appreciation of such magnitude often complicates economic recovery and import disinflation.
So far, however, the RBA has refrained from verbal intervention. The central bank's governor Lowe was out on the wires a few minutes before press time, stating that there is no need to push down the Aussie dollar, as the currency is trading broadly in line with the fundamentals.
Lowe's comments could egg on traders to build aggressive longs amid the ongoing risk-on action in the equity markets. The risk sentiment has been buoyed by expectations for a fiscal rescue package in Europe and progress toward a coronavirus vaccine. Besides, the Australian economy has been shielded from an even worse pandemic downturn, courtesy of record demand for resources like Iron ore (one of Australia's top exports) from China.
That said, traders should note that the three-year Aussie government bond yield has risen above its target of 0.25%. If the yield does not fall back to its target soon, the central bank may feel pressured to step up bond purchases, in which case, the Aussie dollar may face some selling pressure.
The currency pair is trading near 0.7025 at press time, having clocked a high of 0.7035 early Tuesday. The pair has barely moved in response to comments by RBA's Lowe.
Technical levels