Daily Report: Aussie Shrugs off Unexpected RBA Cut

The Australian dollar shrugs off unexpected rate cut from RBA today and recovers from intraday low of 0.7048 again dollar. While markets expected it to be on hold in generally, the Reserve Bank of Australia lowered cash rate by 25bps to 3.0% today. The total accumulative policy easing is now 425bps in the past seven months. The bank judged that there was scope for "further modest adjustment" to cash rate even though market and mortgage rates are at every low levels. The Aussie was initially sold off after the announcement but rebounds strongly. RBA believes that with this monetary policy easing and substantial fiscal initiatives, "significant support" will be provided to domestic demand and that is taken as a signal of halting the easing cycle by the markets. Elsewhere, the Japanese yen's recovery extends further today following weakness in Asian stocks. BoJ left rates unchanged at 0.10% as widely expected. The bank will expand the range of eligible e assets as collateral for loans to bolster the current liquidity boosting measures.

Dollar's recovery halts after hitting 85.06. Dollar index's break of 84.77 minor resistance is a signal of stabilization and with 4 hours MACD above signal line, it's likely that the correction from 86.13 has completed at 83.73. Though, short term outlook remains neutral for the moment. Overall outlook remains unchanged. As long as key support of 82 level (cluster support of 61.8% retracement of 77.69 to 89.62 at 82.24 and 38.2% retracement of 70.70 to 89.62 at 82.39, as well as long term rising trend line at 82.03) holds, the long term up trend from 70.70 is still intact. Above 86.13 will affirm this case and bring rally to retest 89.62 high. However, note that sustained break of 82 will argue that whole up trend has completed and will open up the case for deeper decline to 77.78 cluster support level.

Looking ahead, in the UK, industrial production should have contracted -1.2% mom in February, the 12th consecutive monthly decline but smaller than the sharp fall of -2.6% in the previous month. On annual basis, the gauge is anticipated to have plunged -12.5%, compared with -11.4% in January. Lack of demand domestically and from overseas have forced manufacturers to reduce production. Manufacturing production probably plunged -1.5% mom in February following a -2.9% drop a month ago. From a year ago, a more severe fall of -14.2% would have been recorded, following a -12.8% drop in February.

4Q08 GDP in the Eurozone should be confirmed at -1.5% qoq and -1.3% yoy. This indicated that the 16-nation region has entered a deep contraction in the last quarter in 2008.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.7073; (P) 0.7140; (R1) 0.7203; More

AUD/USD's sideway consolidation from 0.7226 is still in progress and intraday outlook remains neutral for the moment. Another pull back might still be seen but after all, rise from 0.6284 is still in favor to continue as long as near term trendline support holds (now at 0.6941). Above 0.7226 will target 0.7267 cluster resistance (161.8% projection of 0.6248 to 0.6849 from 0.6284 at 0.7256) next and probably further to 38.2% retracement of 0.9849 to 0.6008 at 0.7475. However, note that break of the trendline will be an important indicate that AUD/USD has topped out on bearish divergence condition in 4 hours MACD. Focus will then be shifted to 0.6768 support for confirmation.

In the bigger picture, rise from 0.6248 is treated as the third leg of consolidation from 0.6008 low (0.7267, 0.6248, ...) and is still in progress. But upside is expected to be limited by 38.2% retracement of 0.9849 to 0.6008 at 0.7475 to complete the consolidation and bring down trend resumption. Hence, focus will be on reversal signal as the pair enters resistance zone of 0.7267/7475. Below 0.6768 will confirm that such rise has completed and will turn short term outlook bearish again for retesting 0.6008 low. However, sustained break of 0.7475 fibo resistance will invalidate view and set the stage for stronger rise to 61.8% retracement of 0.9849 to 0.6008 at 0.8382.

Forex News Digest

• The Day Ahead North America: U.S. Consumer Credit, Consumer Optimism
• The Day Ahead Europe: UK Industrial Production, Euro Zone Final Q4 GDP
• Yen Advances as Stock Losses May Reduce Demand for Higher-Yielding Assets
• Australian Dollar Pares Drop as RBA Cuts Rate Less Than Traders Estimated
• Fed Reaches Agreement on Currency Swap Lines to Access Euros, Yen, Pounds
• Citigroup Plans to Sell Euro on Fibonacci Retracement: Technical Analysis
• Euro May Advance to Six-Month High of 141 Versus Yen: Technical Analysis
• U.K. Pound Retains `Ability to Collapse' on Economy, MIG Investments Says

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