RBA leaves the cash rate unchanged as AUD climbs 1c.

The RBA once again confirmed that it would be leaving the official cash rate of 2.5% on hold for the foreseeable future but the AUDUSD has rallied one cent since its low on Saturday morning after the US unemployment report. Why?

The reason the AUDUSD has rallied is twofold. Firstly there was an overwhelming number of traders short on the AUDUSD on Friday and this created an oversold scenario. Secondly the USD has been bought heavily in the past couple of months and an overbought position was created. Simply put the AUD has not risen because of anything the RBA has said or done. The AUD has risen simply because traders who were short AUD locked in profit and traders that were long USD also locked in profit. Thus pushing the USD Dollar down and Aussie Dollar up.

The RBA reiterated that the AUD is still too high. In fact it said the following about our economy at large which clearly points to a lower AUD longer term and does not give any indication that the RBA sees the economy picking up in the next 6 to 9 months.

• Resources sector investment spending is starting to decline significantly, while some other areas of private demand are seeing expansion, at varying rates.
• Overall, the Bank still expects growth to be a little below trend for the next several quarters.
• The labour market has a degree of spare capacity and it will probably be some time yet before unemployment declines consistently.
• Growth in wages has declined noticeably and is expected to remain relatively modest over the period ahead.
• The exchange rate has declined recently, in large part reflecting the strengthening US dollar, but remains high by historical standards, particularly given the further declines in key commodity prices in recent months. It is offering less assistance than would normally be expected in achieving balanced growth in the economy.
• On present indications, the most prudent course is likely to be a period of stability in interest rates.

There is nothing in this report to give reason to buy the AUD.

When the AUD dropped after the US unemployment report Friday it reached the previous low of the 1st September, which also happened to be the 2014 yearly low created on the 24th January. Traders began to exit those short positions and bank profit. We were some of those traders.

Andrew Barnett is the Senior Trader at LTG GoldRock and provides guidance each day to over 4,000 LTG GoldRock members. To learn more go to www.ltggoldrock.com