Sun, Jun 26, 2022 @ 23:11 GMT
HomeAction InsightMarket OverviewAustralian Dollar Weakens after RBA Rate Cut, Canadian Rebounds with Oil Price

Australian Dollar Weakens after RBA Rate Cut, Canadian Rebounds with Oil Price

Asian Markets rebound notably today, following the strong close in US overnight. Canadian Dollar staged a U-turn, following the path of oil price. Australian Dollar is trading generally lower today following RBA’s easing announcement. Yet, downside is relatively limited, expect versus a few. Dollar has turned mixed, together with Yen and European majors. Except that, Swiss Franc seems to has exhausted recent bullish momentum against Euro and weakened in general. Overall, the markets are actually mixed, with focus staying on result of US election.

Technically, USD/CAD’s break of 1.3225 support argues that rebound from 1.3081 has completed. Near term outlook is kept neutral for more range trading. CAD/JPY also rebound after hitting 77.91, ahead of 77.61 support. The development suggest that sideway trading from 81.91 is extending with another rising leg. EUR/CAD’s break of 1.5389 support suggests that corrective fall from 1.5978 is extending with another down leg. Risk will stay on the downside as long as 1.5669 resistance holds.

In Asia, currently, Nikkei is up 1.39%. Hong Kong HSI is up 1.96%. China Shanghai SSE is up 1.13%. Singapore Strait Times is up 1.46%. Japan 10-year JGB yield dis up 0.0056 at 0.046. Overnight, DOW rose 1.60%. S&P 500 rose 1.23%. NASDAQ rose 0.42%. 10-year yield dropped -0.011 to 0.849.

RBA cut rate to 0.1%, to purchase AUD 100B of bonds of 5- to 10-yr maturity

RBA announced a package of policy action today, as widely expected. The package includes:

  • Cut in cash rate target to 0.1%
  • Cut in 3-year AGS yield target to around 0.1%
  • Cut in Term Funding Facility interest rate to 0.1%
  • Cut in Exchange Settlement balances rate to 0%
  • Purchase of AUD 100B of government bonds of maturities of around 5 to 10 years over the next six months.

The central bank acknowledged that recent data have been “a bit better than expected” and “near-term outlook is better than it was three months ago”. But “recovery is still expected to be bumpy and drawn out and the outlook remains dependent on successful containment of the virus.”

Q3 GDP is expected to report positive growth. But it will “take some time to reach the pre-pandemic level of output”. GDP is projected to grow around 6% over the year to June 2021, and 4% in 2022. Unemployment rate is projected to peak at a little below 8 per cent, rather than the 10 per cent expected previously. Unemployment rate is expected to drop be to around 6% at the end of 2022.

AUD/CAD dives after RBA, AUD/NZD steady

Australian Dollar is trading generally lower after RBA easing announcement, including against other commodity currencies. AUD/CAD’s decline is one of the more apparent. Rebound from 0.9247 might be slightly stronger than expected. Yet, the cross is held comfortably below falling 55 day EMA, keeping near term outlook bearish. The corrective fall from 0.9696 should resume sooner or later as long as 0.9433 resistance holds. Break of 0.9247 will target 38.2% retracement of 0.8066 to 0.9696 at 0.9073.

AUD/NZD is holding in very tight range so far today. Downside momentum is somewhat diminishing, yet there is no sign of bottoming yet. As long as 1.0717 support turned resistance holds, further decline remains in favor. 1.0565 structural support is the key trend defining level. Strong rebound from there will keep the rally form 0.9994 intact, and retain the prospect of another rise through 1.1043 at a later stage. But Sustained break of 1.0565 will argue that such rise has completed. Deeper fall would be seen to 61.8% retracement of 0.9994 to 1.1043 at 1.0395 and below.

WTI oil rebounds on OPEC+ product cut extension talks

After initial dive to 33.50 yesterday, WTI oil price staged a strong rebound and it’s now back above 36 handle. The rebound was driven by news that Russia discussed a three-month extension of OPEC+ oil production cuts, until March 2021.

Technically, WTI drew support from 34.10/36 zone as we have expected. The zone covers 100% projection of 43.50 to 35.98 from 41.62 at 34.10 and 34.36 structural support. Break of 36.72 resistance indicates short term bottoming, on bullish convergence condition in 4 hour MACD. Immediate bearishness is now neutralized. There is little prospect of strong rally as long as 55 day EMA (now at 39.27) holds. Though, even in case of another fall, 33.50 should provide the floor.

Gold defending 1848/59 key support zone for now

Regarding the development of Gold, this question has been in our minds for some time. Is gold just correcting the rise from 1451.16 to 2075.18? Or it’s correcting the whole up trend from 1160.17? We’d probably find out very soon as the results of US election unfolds, which should set the direction of the financial markets for the next few months.

1848.39 support is a key level, as it largely overlaps with 23.6% retracement of 1160.17 to 2075.18 at 1859.23. Sustained break of this support zone will favor the case that it’s in a larger scale correction. Deeper decline should be seen to 38.2% retracement at 1509.70, which is close to 55 week EMA (now at 1735.45.

Nevertheless, even in case of a brief breach, failure to sustain below 1848.39, followed by break of 1933.17 resistance, will argue that the correction is a smaller scale one, and has probably completed. Retest of 2075.18 high should be seen rather soon, with prospect of a break out. We’ll see.

Looking ahead

The economic calendar is relatively light today. Swiss CPI and US factory orders are the main features.

AUD/USD Daily Report

Daily Pivots: (S1) 0.7013; (P) 0.7035; (R1) 0.7079; More….

AUD/USD recovered after hitting 0.6991 and intraday bias is turned neutral first. Near term outlook stays bearish as long as 0.7157 resistance holds. Break of 0.6991 will resume the corrective fall from 0.7413 to 38.2% retracement of 0.5506 to 0.7413 at 0.6685. However, firm break of 0.7157 will argue that the correction has completed and turn bias back to the upside for 0.7243 resistance first.

In the bigger picture, while rebound from 0.5506 was strong, there is not enough evidence to confirm bullish trend reversal yet. That is, it could be just a correction inside the long term down trend. Sustained trading back below 55 week EMA (now at 0.6927) will favor the bearish case and argue that the rebound has completed. Focus will be turned back to 0.5506 low. On the upside, break of 0.7413 will extend the rise from 0.5506 to 38.2% retracement of 1.1079 (2011 high) to 0.5506 (2020 low) at 0.7635.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
3:30 AUD RBA Rate Decision 0.10% 0.10% 0.25%
7:30 CHF CPI M/M Oct 0.00% 0.00%
7:30 CHF CPI Y/Y Oct -0.60% -0.80%
15:00 USD Factory Orders M/M Sep 0.80% 0.70%

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