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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.