Daily Report: Aussie Steady as RBA on Hold, Trade Deficit Narrowed

Australian dollar is steady in Asian session after RBA left interest rate unchanged at 2.50% as widely expected. Most importantly, the central bank maintained the neutral stance and noted “the most prudent course is likely to be a period of stability in interest rates.” Other parts of the statement were basically unchanged from the prior one. Growth is expected to be “a little below trend” over the year ahead. It would take “some time” before unemployment declines consistently. And, exchange rate “remains high by historical standards”. Inflation is expected to stay in target range of 2-3% for the next two years based on current accommodative monetary stance. Also released from Australia, trade deficit narrowed to AUD -1.68b in June with 0.9% yoy growth in exports and 4.8% yoy growth in imports.

In Europe, French president Hollande urged ECB and Germany to do more to fight against the “real deflationary risk”. He said “weak inflation too has negative fiscal consequences on revenues as well as on debt”. And, “a lot will depend on the level of the euro, which has weakened over the past few days but not enough.” And he asked ECB to “take all necessary measures to inject liquidity in the economy”. Meanwhile, he said Germany’s trade surplus and financial situation should allow it to “invest more”.

In UK, former MPC member Blancheflower said BoE would be underestimating the slack in the economy. He said current BoE officials are making “arbitrary downward adjustments to labor market slack” and that’s “inappropriate”. He noted mush less wage pressure than BoE estimated and emphasized that “the crucial test is how quickly nominal wages start to rise, but there is absolutely no sign of this happening.”

Released from China, the HSBC services PMI dropped to 50.0 in July, hitting the lowest level since November 2005 when the series began. That compared to 53.1 in June, which was a 15-month high. HSBC noted that “today’s data points to the need of continued policy support to offset the drag from the property correction and consolidate the economic recovery.” Released over the weekend, the official non-manufacturing PMI dropped to 54.2 in July.

Looking ahead, services data will be the main focus for the rest of the day. UK PMI services is expected to improve to 58.1 in July. Eurozone will release PMI services revision and retail sales. US will release ISM non-manufacturing composite, which is expected to rise to 56.6. US will also release factory orders.

Daily Pivots: (S1) 0.9314; (P) 0.9324; (R1) 0.9344; More…

The recovery from 0.9275 temporary low continues and intraday bias remains neutral. With 0.9355 minor resistance intact, deeper decline is still expected. Correction from 0.9504 could extend lower and below 0.9275 will target 0.9211 support and below. In that case, downside should be contained by 38.2% retracement of 0.8659 to 0.9504 at 0.9181 and bring rebound. On the upside, above 0.9355 minor resistance will turn bias back to the upside for 0.9475 resistance.

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 0.9080 near term 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
1:30
AUD
Trade Balance (AUD) Jun
-1.68B
-2.00B
-1.91B
-2.04B
1:45
CNY
HSBC China Services PMI Jul
50

53.1

4:30
AUD
RBA Rate Decision
2.50%
2.50%
2.50%

7:45
EUR
Italy Services PMI Jul

53.2
53.9

8:00
EUR
Eurozone Services PMI Jul F

54.4
54.4

8:30
GBP
Services PMI Jul

58.1
57.7

9:00
EUR
Eurozone Retail Sales M/M Jun

0.40%
0.00%

14:00
USD
ISM Non-Manufacutring Composite Jul

56.6
56

14:00
USD
Factory Orders Jun

0.60%
-0.50%

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