HomeContributorsFundamental AnalysisRBA Talks Down AUD, But The Currency Doesn't Obey

RBA Talks Down AUD, But The Currency Doesn’t Obey

The RBA kept its policy unchanged today, as was widely anticipated. The statement accompanying the decision contained few surprises, with the Bank appearing content with the strong employment growth over recent months, but maintaining its concerns regarding subdued wage growth. Perhaps the most noteworthy point was that policymakers expressed their discomfort with the latest AUD appreciation. They noted that the higher exchange rate is expected to contribute to subdued prices, and that it is weighing on the outlook for growth and employment.

AUD/USD traded somewhat lower following the RBA decision. Nevertheless, the decline triggered fresh buy orders near the round figure of 0.8000 (S1) and then it recovered all the meeting-related losses. Given that the Bank’s attempt to jawbone the currency appeared unsuccessful, we maintain our view that the outlook for AUD remains positive, at least in the short-term. We expect the bulls to remain in the driver’s seat and perhaps challenge once again the 0.8070 (R1) resistance, marked by the peak of the 27th of July. A break above that level would confirm a forthcoming higher high and may open the way for our next resistance hurdle of 0.8160 (R2).

As for the bigger picture, we stick to our guns that as long as the rate continues to trade above 0.7800, the upper bound of the long-term wide sideways range that had been containing the price action since the 2nd of March, the broader outlook remains positive as well. In addition, there is little on the Australian economic calendar over the next couple of weeks that could change the sentiment currently surrounding the Aussie. The next major market mover for AUD may be the wage growth data for Q2, due out in mid-August, as they may determine whether the RBA will turn hawkish anytime soon.

USD retreat in full swing as White House turmoil escalates

The US dollar came under renewed selling interest yesterday, particularly against the euro and sterling. End-of-month portfolio rebalancing flows and the latest turmoil at the White House may have been the drivers of the greenback’s retreat. In an unexpected turn of events, President Trump fired his communications director, Anthony Scaramucci, just ten days after appointing him. Combined with the replacement of the President’s Chief of Staff a few days ago, this frequent recycling of key White House figures likely enhanced speculation that the fiscal-reform promises of the US administration may be further delayed, or perhaps completely derailed. We should also note that there have been media reports recently suggesting Trump’s influential Secretary of State, Rex Tillerson, is considering to quit. Bearing all these in mind, we think that the dollar could continue to underperform for a while, amid these political uncertainties and subdued expectations for another Fed hike this year.

EUR/USD edged north on Monday, breaking above the resistance (now turned into support) barrier of 1.1775 (S1). The move confirms a forthcoming higher high on the 4-hour chart, and keeps bias to the upside, in our view. Even if the pair corrects lower to challenge the 1.1775 (S1) as a support this time, we expect buyers to take charge again soon and perhaps target the 1.1880 (R1) hurdle in the near future. A break above that resistance is possible to open the way for our next obstacle of 1.1980 (R2).

Today’s highlights:

During the European morning, the UK manufacturing PMI for July will be in focus. The forecast is for the figure to remain unchanged, in which case the reaction in GBP is likely to remain relatively limited. In Eurozone, the flash preliminary estimate of GDP for Q2 is due out and the forecast is for the bloc’s economy to have grown at the same robust pace as previously. We also get Eurozone’s final manufacturing PMI for July.

From the US, we get a raft of economic data: The core PCE price index for June, personal income and spending data for the same month, as well as the ISM manufacturing PMI for July. Kicking off with the core PCE index, without a forecast available, we see the case for the yearly rate to have held steady, given that the core CPI rate for the month remained unchanged too. Turning to personal income and spending, expectations are for both figures to have risen at the same pace as previously. Last but not least, the ISM manufacturing PMI for July is expected to decline. We think that the reaction in USD may depend primarily on any surprises in the core PCE as well as personal income rates, given the recent softness in US inflation. However, even if we were to see a positive surprise in these indicators, we would expect any positive reaction in USD to remain relatively short-lived, considering the negative sentiment currently surrounding the currency.

AUD/USD

Support: 0.8000 (S1), 0.7950 (S2), 0.7900 (S3)

Resistance: 0.8070 (R1), 0.8160 (R2), 0.8250 (R3)

EUR/USD

Support: 1.1775 (S1), 1.1710 (S2), 1.1615 (S3)

Resistance: 1.1880 (R1), 1.1980 (R2), 1.2100 (R3)

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