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Daily Pivots: (S1) 0.6596; (P) 0.6617; (R1) 0.6655; More...

A temporary top should be in place at 0.6642 in AUD/USD with the current retreat and intraday bias is turned neutral for some consolidations. Further rally is expected as long as 0.6506 support holds. Above 0.6442 will extend the rebound from 0.6348 to 0.6798 resistance next.

In the bigger picture, overall, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern, with fall from 0.6798 as another falling leg. Deeper fall could be seen to the lower side of the range between 0.6169/6361. But strong support should be seen there to contain downside. Meanwhile, break of 0.6798 will target upper side of the range at 0.7156.

Australian Dollar strengthened during Asian session today, buoyed by stronger-than-expected employment growth data. This positive surprise offered some support to Aussie, though gains were limited, failing to push the currency above yesterday's high. The labor market report, which showed a modest increase in unemployment rate, suggests some loosening in employment conditions. While this development might be welcomed by RBA as a sign of easing pressures in the labor market, it is unlikely to influence the central bank's policy in the near term. RBA has been clear that it is not considering rate cuts this year and remains focused on monitoring disinflation before deciding on further rate hikes.

Looking at the currency market, the Euro has emerged as the strongest performer of the week so far, followed by Aussie, and then Sterling. Conversely, Japanese Yen is struggling, marking the weakest performance, despite Japan's stronger-than-expected GDP data. Swiss Franc also underperformed, likely due to improving risk sentiment, which tends to reduce demand for safe-haven assets. The US Dollar has similarly been on the back foot, positioning as the third weakest currency. Kiwi is having a mixed week, largely stabilizing despite RBNZ's surprising dovish rate cut. Canadian Dollar is also holding a middle ground.

British Pound is struggling to find a clear direction, caught between conflicting economic signals. While the strong jobs report initially provided support, this was counterbalanced by lower-than-expected inflation reading, muddied the outlook. The upcoming GDP data could be crucial in providing the Pound with a firmer sense of direction.

Technically, EUR/GBP's strong rebound from 38.2% retracement of 0.8382 to 0.8624 at 0.8532 keep its near term outlook bullish. Focus is now on whether EUR/GBP could break through 0.8624 to resume the rally from 0.8382.

In Asia, at the time of writing, Nikkei is up 0.60%. Hong Kong HSI is up 0.14%. China Shanghai SSE is up 0.83%. Singapore Strait Times is up 0.93%. Japan 10-year JGB yield is up 0.0231 at 0.837. Overnight, DOW rose 0.61%. S&P 500 rose 0.38%. NASDAQ rose 0.03%. 10-year yield fell -0.032 to 3.820.

Japan's Q2 GDP grows 0.8% qoq on strong consumption and capital spending

Japan's economy showed stronger-than-expected growth in Q2, with real GDP rising by 0.8% qoq, surpassing the anticipated 0.6% qoq increase. On an annualized basis, GDP surged by 3.1%, well above the expected 2.1%. This marks a significant rebound after the sharp contraction experienced in Q1, and it is the first increase in two quarters.

The recovery was largely driven by a notable rise in private consumption, which increased by 1.0%. This is particularly significant as it follows four consecutive quarters of decline, a losing streak not seen since the aftermath of the 2008 financial crisis. Additionally, capital spending grew by 0.9%, marking its first gain in two quarters.

On a nominal basis, GDP increased by 1.8% in Q2, translating to an annualized rate of 7.4%. This growth pushed Japan's GDP above JPY 600T for the first time, a milestone attributed to the ongoing inflationary pressures driven by the weakening Yen.

Australia's employment surges 58.2k while unemployment rate ticks up

Australia's labor market showed robust growth in July, with employment rising by 58.2k, significantly surpassing expectations of 26.5k. This increase was driven by a strong gain in full-time employment, which rose by 60.5k, while part-time employment saw a slight decline of -2.3k.

Unemployment rate ticked up from 4.1% to 4.2%, slightly higher than the expected 4.1% and marking the highest level since November 2021. This increase in the unemployment rate comes alongside a rise in the participation rate, which climbed from 66.9% to a record high of 67.1%. Additionally, the employment-to-population ratio edged up by 0.1% to 64.3%, just shy of the historical high of 64.4% set in November of last year. Monthly hours worked also increased by 0.4% mom.

Kate Lamb, ABS head of labour statistics, noted that while the unemployment rate has increased by 0.1 percentage point in each of the past two months, the record high participation rate and near-record employment-to-population ratio indicate that "there continues to be a high number of people in jobs, and looking for and finding jobs."

RBNZ's Orr signals careful and measured rate reductions

RBNZ Governor Adrian Orr outlined the central bank's approach to its recent monetary policy shift in an interview with Bloomberg TV today. Following the unexpected rate cut that initiated the easing cycle yesterday, Orr emphasized that RBNZ intends to lower interest rates toward a more neutral setting at a "careful and measured pace." This strategy is aimed at ensuring that inflation expectations remain firmly anchored at the 2% target, which Orr stated is the central bank's "single focus."

Orr expressed confidence in the central bank's course of action, noting that key indicators of inflation pressures are moving in the right direction. RBNZ has been closely monitoring "price-setting behavior," "inflation expectations," and "domestic homegrown inflation components." According to Orr, all these factors are now aligned with the goal of restoring "low and stable inflation" over the next couple of years.

Furthermore, Orr highlighted that various economic indicators are pointing toward a positive outlook for growth. "We see positive economic growth coming and we can be easing interest rates," he said, expressing optimism that New Zealand could achieve "growth without the inflation."

China's industrial production slows while retail sales beat expectations

China's economic data for July revealed a mixed picture, with industrial production growth continuing to decelerate while retail sales showed unexpected strength. Industrial production rose by 5.1% yoy, down from 5.3% in June and missing the expected 5.2%. This also marks the third consecutive month of slowing growth.

On a more positive note, retail sales increased by 2.7% yoy, accelerating from the previous month's 2.0% and exceeding expectations of 2.6%.

However, fixed asset investment growth also disappointed, rising by 3.6% year-to-date compared to the same period last year, below the anticipated 3.9%.

Looking ahead

UK will release GDP, production and trade balance in European session. Swiss will publish PPI. Later in the day, a slew of economic data from the US will be featured, including jobless claims, retail sales, Empire state manufacturing, Philly Fed manufacturing, import prices, industrial production, business inventories and NAHB housing index.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6596; (P) 0.6617; (R1) 0.6655; More...

A temporary top should be in place at 0.6642 in AUD/USD with the current retreat and intraday bias is turned neutral for some consolidations. Further rally is expected as long as 0.6506 support holds. Above 0.6442 will extend the rebound from 0.6348 to 0.6798 resistance next.

In the bigger picture, overall, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern, with fall from 0.6798 as another falling leg. Deeper fall could be seen to the lower side of the range between 0.6169/6361. But strong support should be seen there to contain downside. Meanwhile, break of 0.6798 will target upper side of the range at 0.7156.

Economic Indicators Update

Summary

• The Reserve Bank of New Zealand (RBNZ) kicked off its rate cut cycle at this week's meeting, lowering its policy interest rate by 25 bps to 5.25%. The decision was a mild surprise, with an overall majority of analysts (including ourselves) expecting the central bank would remain on hold.
• Several factors contributed to the pivot to monetary easing. The RBNZ cited slowing inflation and declining inflation expectations. Moreover, weak sentiment surveys and mixed labor market figures suggest spare capacity in the economy is likely to continue building, giving the central bank greater confidence that inflation will return to the target range in a timely fashion.
• In addition to reducing interest rates at this week's meeting, the RBNZ revised its projection for its policy interest rates to reflecting a faster pace of easing, reaching 3.85% by Q4-2025. Given the central bank's evident comfort in lowering interest rates this week (ahead of updated inflation figures), we see no significant impediments to further near-term rate cuts. We expect 25 bps rate cuts at each and every meeting through May 2025, as well as 25 bps rate cuts in August and November of next year. That would see the policy rate end 2024 at 4.75%, and end 2025 at 3.50%.
• A weak New Zealand economy and pronounced period of RBNZ monetary easing means we expect the New Zealand dollar to be an underperformer among the G10 currencies over the medium-term. We expect, at best, only modest gains in the NZ currency versus the greenback through the end of 2025.

Reserve Bank of New Zealand Kicks Off Its Rate Cut Cycle

The Reserve Bank of New Zealand (RBNZ) sprung a mild surprise at this week's monetary policy announcement, delivering a 25 bps policy rate cut to 5.25%. The consensus forecast from analysts had been for the central bank to hold rates steady, although a sizable minority had expected the RBNZ to move at this week's meeting. The RBNZ's decision also represents a relative rapid pivot from the central bank—while the RBNZ's July announcement was reasonably balanced, as recently as May the central bank had delivered a hawkish statement, including an upward revision to it projected policy rate path, suggesting at that time there was still at least some risk the central bank could hike rates further.

What then has changed between May and August for the RBNZ to lower its policy rate this week? On the price front, Q2 inflation surprised slightly to the downside, slowing to 3.3% year-over-year. To be sure, much of the deceleration was driven by tradables inflation, with non-tradables inflation showing a more gradual deceleration. Importantly, survey-based measures have also shown declining inflation expectations, while the Q2 Quarterly Survey of Business Opinion also showed a net 23% of firms increasing prices during the quarter, down from a net 35% that raised prices in Q1.

The most recent indicators on economic activity suggest the growth environment remains very weak, supporting the notion that lessening demand and increasing spare capacity should continue to see inflationary pressures abate in the quarters ahead. Although Q1 GDP rose a modest 0.2% quarter-over-quarter, a wide range of survey data point to an underwhelming economy through Q2 and into Q3. The Quarterly Survey of Business Opinion showed an increase in net pessimism to 44% in Q2, from 25% in Q1. Meanwhile, a net 28% of businesses reported a decline in their own trading activity in Q2, compared to a net 23% that reported a decline in Q1. This latter metric is particularly significant, given that firms' assessment of their own trading activity has often proved to be a reliable indicator of overall GDP growth. Other recent survey data also include a decline in the June manufacturing PMI to 41.1 and a fall in the June services PMI to 40.2. Finally, we interpret the Q2 labor market report as relatively weak overall, including a drop in full-time employment and hours worked, as well as a rise in the unemployment rate.

Against this backdrop, the RBNZ lowered its near-term GDP outlook, and now forecasts negative GDP growth in both Q2 and Q3. The central bank also see a higher peak in the unemployment rate than previously, reaching 5.4% by early next year. It is this larger buildup of spare economic capacity that gives the RBNZ some greater confidence that inflation is heading sustainably towards its inflation target range (indeed, the central bank sees headline inflation slowing sharply to 2.3% year-over-year in Q3-2024).

Overall, the combination of slowing inflation and weak growth saw the RBNZ offer several important perspectives as part of its August monetary policy deliberations:

• The weakening in domestic economic activity has become more pronounced and broad-based, and that a broad range of high-frequency indicators point to a material weakening in domestic economic activity in recent months.
• Signs of slower inflation and reducing inflation expectations, combined with the weaker high-frequency indicators of economic activity, provide more confidence that headline inflation is returning to the target band in the September 2024 quarter.
• The downside risks to output and employment previously highlighted by central bank policymakers have become more apparent.
• Recent indicators give confidence that inflation will return sustainably to target within a reasonable time frame. With headline CPI inflation expected to return to the target band in the September quarter and growing excess capacity expected to support a continued decline in domestic inflation, the Committee agreed there was scope to temper the extent of monetary policy restraint.

Not only did the RBNZ lower interest rates at this week's meeting, but revised its projections for the policy interest rate path lower, signaling the likelihood of a series of rate cuts in the quarters ahead. The central bank projected an average policy rate of 4.92% for Q4-2024, falling to 3.85% by Q4-2025 and 3.13% by Q4-2026. Given the central bank's evident comfort in lowering interest rates this week (ahead of the Q3 inflation figures), we see no significant impediments to further near-term rate cuts, and now forecast 25 bps rate cuts at the October and November meetings. Beyond that the cadence of RBNZ's easing (either a pause, or a step up to 50 bps increments) will likely depend on the degree of progress of disinflation. So long as inflation trends continue to moderate, our base case is also for 25 bps rate reductions in February, April and May next year. By the second half of next year and as the central bank moves closer to a more neutral policy interest rate, we expect a more gradual quarterly frequency of policy moves and anticipate rate cuts at the August and November 2025 meetings, which would see the RBNZ's policy rate end next year at 3.50%. A weak New Zealand economy and pronounced period of RBNZ monetary easing means we expect the New Zealand dollar to be an underperformer among the G10 currencies over the medium-term. We expect, at best, only modest gains in the NZ currency versus the greenback through the end of 2025.

China's economic data for July revealed a mixed picture, with industrial production growth continuing to decelerate while retail sales showed unexpected strength. Industrial production rose by 5.1% yoy, down from 5.3% in June and missing the expected 5.2%. This also marks the third consecutive month of slowing growth.

On a more positive note, retail sales increased by 2.7% yoy, accelerating from the previous month's 2.0% and exceeding expectations of 2.6%.

However, fixed asset investment growth also disappointed, rising by 3.6% year-to-date compared to the same period last year, below the anticipated 3.9%.

Australia's labor market showed robust growth in July, with employment rising by 58.2k, significantly surpassing expectations of 26.5k. This increase was driven by a strong gain in full-time employment, which rose by 60.5k, while part-time employment saw a slight decline of -2.3k.

Unemployment rate ticked up from 4.1% to 4.2%, slightly higher than the expected 4.1% and marking the highest level since November 2021. This increase in the unemployment rate comes alongside a rise in the participation rate, which climbed from 66.9% to a record high of 67.1%. Additionally, the employment-to-population ratio edged up by 0.1% to 64.3%, just shy of the historical high of 64.4% set in November of last year. Monthly hours worked also increased by 0.4% mom.

Kate Lamb, ABS head of labour statistics, noted that while the unemployment rate has increased by 0.1 percentage point in each of the past two months, the record high participation rate and near-record employment-to-population ratio indicate that "there continues to be a high number of people in jobs, and looking for and finding jobs."

Full Australia employment release here.

Japan's economy showed stronger-than-expected growth in Q2, with real GDP rising by 0.8% qoq, surpassing the anticipated 0.6% qoq increase. On an annualized basis, GDP surged by 3.1%, well above the expected 2.1%. This marks a significant rebound after the sharp contraction experienced in Q1, and it is the first increase in two quarters.

The recovery was largely driven by a notable rise in private consumption, which increased by 1.0%. This is particularly significant as it follows four consecutive quarters of decline, a losing streak not seen since the aftermath of the 2008 financial crisis. Additionally, capital spending grew by 0.9%, marking its first gain in two quarters.

On a nominal basis, GDP increased by 1.8% in Q2, translating to an annualized rate of 7.4%. This growth pushed Japan's GDP above JPY 600T for the first time, a milestone attributed to the ongoing inflationary pressures driven by a weakening yen.

RBNZ Governor Adrian Orr outlined the central bank's approach to its recent monetary policy shift in an interview with Bloomberg TV today. Following the unexpected rate cut that initiated the easing cycle yesterday, Orr emphasized that RBNZ intends to lower interest rates toward a more neutral setting at a "careful and measured pace." This strategy is aimed at ensuring that inflation expectations remain firmly anchored at the 2% target, which Orr stated is the central bank's "single focus."

Orr expressed confidence in the central bank's course of action, noting that key indicators of inflation pressures are moving in the right direction. RBNZ has been closely monitoring "price-setting behavior," "inflation expectations," and "domestic homegrown inflation components." According to Orr, all these factors are now aligned with the goal of restoring "low and stable inflation" over the next couple of years.

Furthermore, Orr highlighted that various economic indicators are pointing toward a positive outlook for growth. "We see positive economic growth coming and we can be easing interest rates," he said, expressing optimism that New Zealand could achieve "growth without the inflation."

Key Highlights

• Crude oil prices struggled to clear the $80.00 resistance zone.
• A connecting bullish trend line is forming with support at $76.15 on the 4-hour chart.
• EUR/USD rallied and surpassed the 1.1020 resistance.
• Bitcoin seems to be facing hurdles near the $61,500 level.

Crude Oil Price Technical Analysis

Crude oil prices recovered above the $78.00 and $78.80 levels. It even spiked above $80.00 before the bears appeared and pushed prices lower.

Looking at the 4-hour chart of XTI/USD, the price started a fresh decline from the 80.26 level. It traded below the $78.80 and $78.00 levels. There was a test of the 38.2% Fib retracement level of the upward move from the $72.04 swing low to the $78.26 high.

The price is now testing the 100 simple moving average (red, 4-hour) and is now well below the 200 simple moving average (green, 4-hour).

Immediate resistance on the upside is near the $78.00 level. The next major resistance is near the $78.80 zone, above which the price may perhaps accelerate higher. In the stated case, it could even visit the $80.00 resistance.

If not, the price might start another decline. The first major support on the downside is near the $76.20 level or the 50% Fib retracement level of the upward move from the $72.04 swing low to the $78.26 high.

There is also a connecting bullish trend line forming with support at $76.15 on the same chart. The next major support is $75.00. Any more losses might send oil prices toward $72.00 in the coming sessions.

Looking at Bitcoin, the price started a recovery wave above the $60,000 level but the bears are protecting gains above the $61,500 level.

Economic Releases to Watch Today

• US Initial Jobless Claims - Forecast 235K, versus 233K previous.
• US Retail Sales for July 2024 (MoM) – Forecast +0.3%, versus 0% previous.

• Gold reversed from resistance zone
• Likely to fall to support level 2400.00

Gold recently reversed down from the resistance area located between the strong resistance level 2475.00 (which stopped the previous impulse waves (3) and 1) and the upper daily Bollinger Band.

The downward reversal from the resistance level 2475.00 stopped the previous impulse waves 3 and (5).

Given overbought daily Stochastic, Gold can be expected to fall further toward the next support level 2400.00.