Since the RBA cut the official cash rate back to a record low of 2% last Tuesday, the Australian dollar (AUD/USD) has enjoyed quite a surge higher. The AUD/USD has rallied strongly over the last couple of days from below 0.80 to a new three month high above 0.8150 in recent hours. This is of course, a long way away and in the opposite direction from where the RBA ideally wish to have the AUD/USD. In its statement last Tuesday, the RBA said, “Further depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices.”
Unfortunately, there isn’t much they can do at the moment. I believe a lot of appreciation of the AUD/USD has nothing to do with anything in Australia. The U.S. Dollar is currently hovering at a three month low against a basket of currencies, including Australia.
At the start of this year the U.S. Federal Reserve (the Fed), the U.S. Central Bank, were in the spotlight as 2015 was the year they were going to finally raise rates. However, there is a problem. While U.S. growth is rebounding, it is probably not rebounding as far and as fast as many would have expected. U.S. economic indicators have routinely missed expectations since January, which suggests the Fed isn’t getting any closer to raising rates. The latest news was retail sales, which were weaker-than-forecast and of course only fueled further concerns about growth in the world’s largest economy.
The U.S. dollar has been sold off strongly accordingly. Whilst the U.S. economy continues to slowly rebound, there really isn’t much the RBA can do in the near future to have the AUD/USD where they want it.