Will AUD Extend Losses on RBA?

Will AUD Extend Losses on RBA?

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Will AUD Extend Losses on RBA?

Tonight is a busy one in Australia with retail sales, the trade balance and a Reserve Bank rate decision on the calendar. The latest consolidation in the Australian dollar reflects the market’s hope that the RBA will remain optimistic. Data hasn’t been terrible as evidenced by last night’s economic reports. Service sector activity expanded at its fastest pace in 6 months, inflation ticked up according to the Melbourne Institute Inflation index and job advertisements increased a whooping 6.2% at the start of the year, which is the largest one-month rise since 2010. All of these reports along with the improvements seen in the table below suggest that a 2018 rate hike remains in play but the currency is strong (up 4.5% since the last meeting) and the RBA may not want to drive it higher by talking about tightening just quite yet. Nonetheless, the Australian economy continued its recovery since their last meeting and China is performing better than expected. If the RBA talks rate hikes or emphasizes the upside risks to growth and inflation, AUD/USD will bounce back to .7980-.8000. However if they express greater concerns about the level of currency and its impact on the economy, AUD/USD could slip down to .7850.

Technically, AUD/USD is in a downtrend but 79 cents is a former resistance turned support level (from Oct 13 high). If it drops back below 79 cents, the next stop should be 7850, the 23.6% Fib retracement of the 2011 to 2016 decline. On the upside, if 79 cents hold, the 20-day SMA just under 80 cents could cap gains.

Will AUD Extend its Slide Below 91 Cents?

Will AUD Extend its Slide Below 91 Cents?

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Fundamentals

Tonight is a big night for the Australian dollar. Between the release of Chinese inflation numbers and Australia’s employment report, we expect a meaningful reaction move in AUD/USD. Over the past 24 hours the Australian dollar fell hard on the back of weaker consumer confidence and reports that iron ore prices could fall further. There have also been ongoing concerns that Australia’s economy is losing momentum due to the slowdown in Chinese imports. Whether AUD/USD breaks below 91 cents hinges on tonight’s employment report. Economists are looking for job growth to rebound after a decline in July but based upon the manufacturing and construction sector PMI reports, labor market conditions did not improve in August. Should job growth in Australia fall short of expectations, we expect AUD/USD to drop towards 91 cents with a break of 91 determined by the mix of full and part time job losses. However if job growth meets or exceeds 15k, AUD/USD could find itself trading back above 92 cents.

Technicals

Breaking 92 cents is extremely important for the Australian dollar but as you can see from the chart, the main resistance level for the pair is closer to 0.9150, the 32.8% Fibonacci retracement of the 2008 to 2011 rally. If NZD/USD closes below this level in a meaningful way, is next target should be 90 cents. On the other hand, AUD/USD needs to recapture 0.9250 to negate the downtrend.

CAD/JPY – Inverse Head and Shoulders

CAD/JPY – Inverse Head and Shoulders

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Fundamentals

After consolidating for the past 2 weeks, CAD/JPY has finally experienced a decent breakout but unfortunately there was no clear fundamental driver for the move. Average hourly earnings growth in Canada slowed which is negative for the CAD while softer consumer confidence in the U.S. should have driven USD/JPY lower. However both the Canadian and U.S. dollars ignored their respective data to trade higher which is why we are skeptical of the sustainability of the breakout in CAD/JPY. The rebound in oil prices supported the loonie but the increase in crude was small. Tomorrow, we have the Bank of Japan and Federal Reserve monetary policy decisions along with Canadian and U.S. GDP reports scheduled for release. These high level event risks put CAD/JPY in play and if CAD GDP growth accelerates and the Yen weakens, it would provide the fundamental catalyst for a stronger move higher. However if GDP misses, CAD/JPY could drop back below 93.

Technicals

The fact that CAD/JPY ended the North American trading session at its highs is a very bullish signal for the currency pair. There’s no question that the currency pair has broken out from a tight consolidation but 94 is an important resistance level in part because it is the neckline of the inverse head and shoulders pattern. If CAD/JPY clears 94, it should be smooth sailing to 95. However if it fails at 94, a dip back to 93 is likely.

Will AUD/JPY Extend its Losses?

Will AUD/JPY Extend its Losses?

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Fundamentals

AUD/JPY is vulnerable to further losses in the new trading week if Australian and Chinese data surprises to the downside. On Sunday, we have service sector data from Australia and China along with the final HSBC Chinese Manufacturing PMI index scheduled for release. Recent economic reports from Australia have been uneven while Chinese economic reports have been mostly disappointing. In the front of the week, the health and outlook of both countries will be focus because in addition to these reports, the RBA also has a monetary policy meeting and China convenes for their annual National People’s Congress on Wednesday. At this meeting, the Premier announces the country’s 2014 growth targets. The Yen is not in play but USD/JPY will be affected by the U.S. personal income, spending and manufacturing ISM reports due on Monday. As a result, we could see some interesting moves in AUD/JPY.

Technicals

Friday marked the fourth consecutive day of losses for AUD/JPY. From a technical perspective, AUD/JPY is closing in on the first standard deviation Bollinger Band which hovers right below this week’s low. This area could be a near term support level for AUD/JPY but if it is broken, then the February low of 88.25 is support. If AUD/JPY recovers – 92, an area where the 50 and 200-day SMA converge should be resistance.