Will AUD Extend Losses on RBA?

Will AUD Extend Losses on RBA?

Chart Of The Day

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.

AUD/USD Pre RBA Levels

AUD/USD Pre RBA Levels

Chart Of The Day

AUD/USD Pre RBA Levels

The Australian dollar will be in focus tonight with PMIs, retail sales and the Reserve Bank of Australia’s monetary policy announcement on the calendar. We are looking for slightly stronger data and unchanged policy guidance but that may not do much for the currency. Taking a look at how Australia’s economy performed since the last meeting, first and foremost, there were fewer than usual economic reports released between monetary policy announcements. Retail sales, the trade balance and Q3 GDP for example won’t be shared until the day of or after the RBA rate decision. Since the November meeting, consumer confidence has fallen, inflation expectations declined and housing activity slowed. Labor market indicators were mixed but for the most part the RBA is happy with the jobs market. Business confidence and manufacturing activity also improved as iron ore prices rocketed higher. These improvements will encourage the RBA to maintain their neutral policy stance while preserving their view that inflation will remain low for some time. Since we don’t expect anything new from the central bank, the impact on AUD should be limited. AUD/USD is still in a downtrend but we don’t believe that the RBA announcement will take the pair out of its .7532 to .7660 range – the catalyst will either be Australian data (retail sales and GDP) or U.S. data.

Technically AUD/USD needs to close firmly above .7650 in order to shake off the downtrend. Even then, there’s resistance between .7680 and .7720. However by the same token, there’s also significant support at .7530. A break below that level could precipitate a stronger move lower down to 74 cents.

Will RBA Drive AUDJPY to 85?

Will RBA Drive AUDJPY to 85?

Chart Of The Day

Will RBA Drive AUDJPY to 85?

While we still like selling USD/JPY, we see a better opportunity in the Australian dollar. Last night’s weaker than expected Chinese industrial production and retail sales numbers reminded investors about the trouble in the region. Tonight, the minutes from the last RBA meeting are scheduled for release and we believe they will echo the cautious view presented by RBA Governor Lowe after the last meeting. To the market’s surprise, the central bank cut their growth forecasts citing the negative impact on the stronger currency. RBA Governor Lowe warned that a continued rise in the AUD would depress prices and limit employment. We believe this same sentiment will ring throughout the minutes reminding investors of the recent strains on the economy and weighing on the Australian dollar. We like selling AUD versus the Yen because not only was Japanese GDP very strong but we still believe USD/JPY should be trading lower.

Technically, the reversal on Friday failed to have significant continuation and the rejection of the 50-day SMA suggests that we could have another move below 86.00

AUD/USD Eyes 77 Cents Ahead of RBA

AUD/USD Eyes 77 Cents Ahead of RBA

Chart Of The Day

AUD/USD Eyes 77 Cents Ahead of RBA

The main focus tonight will be on Australia and the Reserve Bank’s monetary policy announcement. At their last meeting the RBA left rates unchanged and said, “Under present circumstances, an appreciating exchange rate could complicate the adjustment under way in the economy.” Investors interpreted these comments to mean discomfort with the current level of the currency and sent AUD tumbling lower as a result. There’s a small subset of investors looking for the RBA to ease this month because CPI declined in the first quarter and activity slowed according to the PMIs. However according to the following table, consumer spending rebounded, business confidence improved, the unemployment rate declined and market indicators ticked upwards. So like many of their peers, the RBA may wait and see how the economy performs in the next month before taking additional action.

Technically the uptrend in AUD/USD remains strong as long as the currency does not close below the 50-day SMA at 0.7540. Resistance is at the March high of 0.7722 and support is at the moving average. If the upside barrier is breached, AUD/USD will aim for its April high. If the moving average is broken, 75 cents will be tested with a possible move down to 0.7450.

Will RBA Send EUR/AUD to 1.5600

Will RBA Send EUR/AUD to 1.5600

Chart Of The Day

The euro risk aversion rally sent EUR/AUD to fresh highs last week and although much of the gain have been erased the pair remains elevated. Tonight however the Aussie may get a boost from the RBA meeting. The RBA has been steadfastly neutral in its stance as it really does not want to lower rates any further to stoke the real estate bubble in the country.

Therefore with Aussie now well below its 7500 target the RBA is likely to reaffirm that it neutral bias and suggest that the yield will remain for the time being. That could attract carry trade flows back into Aussie and send EUR/AUD back below the 1.5600 level