Daily Report: Aussie Soft after RBA on Hold, Dollar Rally Extends

Aussie weakened in Asia session today following broad based rally in the greenback. And Aussie stays weak after RBA left rates unchanged at 2.50% as widely expected. The central bank maintained the neutral stance that “the most prudent course is likely to be a period of stability in interest rates.” In the accompanying statement, RBA maintained the forecast that growth will be “a little below trend” over the year ahead. But it also noted improving business conditions and recovery in household sentiment. It also noted that the labor market has “a degree of spare capacity” and it will take some time for unemployment to decline consistently. And, it maintained that inflation would be consistent with target even in case of depreciation in exchange rates. Overall, the statement offered nothing new to the markets. Also released from Australia, current account deficit widened to AUD -13..7b in Q2, building approvals rose 2.5% mom in July.

Elsewhere, dollar strength is the generally theme so far this week. In particular, USD/JPY jumps above 104.80 and is heading back to 105.41 high. The dollar index extended recent rally and hits as high as 82.93 so far today. Near term outlook stays bullish for 161.8% projection of 78.90 to 81.02 from 79.74 at 83.20 next. Based on current momentum, the current rally might have a test on 84.75 key resistance. We’ll be cautious on strong resistance from there to at least bring a pull back, though. Meanwhile, outlook will stay bullish as long as 82.31 holds in case of retreat.

Elsewhere, Japan monetary base rose 40.5% yoy in August, labor cash earnings rose 2.6% yoy in July. Looking ahead, Swiss GDP is expected to show 0.5% qoq growth in Q2. UK construction PMI is expected to drop to 61.5 in August and any downside surprise there could trigger some volatility in the markets. Eurozone PPI is expected to drop further to -1.1% yoy in July. ISM manufacturing index will be the main focus in US session and is expected to drop slightly from 57.1 to 56.8. But that would still be the second highest reading this year. A point to note is that employment component jumped sharply to 58.2 in July and could retreat a little bit. But any upside surprises would trigger further rally in the greenback.

Daily Pivots: (S1) 0.9319; (P) 0.9335; (R1) 0.9347; More…

AUD/USD drops to as low as 0.9284 so far today. The break of 0.9300 minor support argues that recovery from 0.9236 has completed at 0.9373 already. And the corrective structure in turn argues that decline from 0.9504 is still in progress. Intraday bias is back on the downside for 0.9236 and below. At this point, such decline from 0.9504 is still viewed as a correction. Thus, we’d expect strong support from 38.2% retracement of 0.8659 to 0.9504 at 0.9181 to bring near term reversal. On the upside, above 0.9373 will turn bias back to the upside for 0.9475/9504 resistance zone.

In the bigger picture, price actions from 1.1079 are viewed as a medium term correction. Recent development argues that it’s possibly finished at 0.8659 on bullish convergence condition in weekly MACD, ahead of 50% retracement of 0.6008 to 1.1079 at 0.8544. Rebound from there would extend higher to 38.2% retracement of 1.1079 to 0.8659 at 0.9583 first. Sustained break there will confirm this case and target 61.8% retracement at 1.0155 and above. However, break of 0.9181 fibonacci support will dampen this bullish view and would likely extend the correction from 1.1079 to a new low.

AUD/USD 4 Hours Chart

AUD/USD Daily Chart

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
23:50
JPY
Monetary Base Y/Y Aug
40.50%
43.70%
42.70%

1:30
JPY
Labor Cash Earnings Y/Y Jul
2.60%
0.90%
0.40%
1.00%
1:30
AUD
Current Account Balance (AUD) Q2
-13.7B
-13.8B
-5.7B
-7.8B
1:30
AUD
Building Approvals M/M Jul
2.50%
1.70%
-5.00%
-3.80%
4:30
AUD
RBA Rate Decision
2.50%
2.50%
2.50%

5:45
CHF
GDP Q/Q Q2

0.50%
0.50%

8:30
GBP
Construction PMI Aug

61.5
62.4

9:00
EUR
Eurozone PPI M/M Jul

-0.10%
0.10%

9:00
EUR
Eurozone PPI Y/Y Jul

-1.10%
-0.80%

14:00
USD
ISM Manufacturing Aug

56.8
57.1

14:00
USD
ISM Prices Paid Aug

59
59.5

14:00
USD
Construction Spending M/M Jul

0.90%
-1.80%

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