Mid-Day Report: Aussie Steady ahead of RBA Rate Decision

The Australian dollar is steadily in range as markets are awaiting RBA rate decision in the coming Asian session. The central bank is expected to keep rate unchanged at 2.50% and maintain the neutral stance. It would likely continue to pledge that “the most prudent course is likely to be a period of stability in interest rates”. Markets are generally expecting the central bank to stand pat at least for the rest of 2014. Overall, the statement would deliver little new information. Note also that the Quarterly Monetary Policy Statement to be released on Friday should give some revisions to the economic outlook.

Nonetheless, this could still be a volatile week for AUD/NZD in case of some surprise. We already had Australia retail sales released today which showed better than expected growth of 0.6% mom in June. There will Australia trade balance and RBA rate decision tomorrow, employment on Thursday. New Zealand will release employment data on Wednesday. The overall outlook in AUD/NZD is unchanged. The cross turned into sideway trading after making a low at 1.0489. There is no sign of trend reversal. We’d expect upside to be limited by 1.1197 resistance and an eventual downside is anticipated. It would be rather hard to trade inside the range. But one might try to sell AUD/NZD close to 55 week EMA (now at 1.1088) and target 1.06 handle.

Elsewhere, stock markets stabilized from last week’s sell-off with European indices having mild gain today. US futures also point to mildly higher open. Portugal announced EUR 4.9b bailout of Banco Espirito Santo SA. The Bank of Portugal’s Resolution Fund will transfer the assets of Banco Espirito Santo to a new company called Novo Banco and the treasury loan will eventually be repaid by sale of the new company. The bad assets would be left with the shareholders and junior bond holders of Banco Espirito Santo. The Finance Ministry emphasized in the statement that it’s not the “taxpayers” who would “shoulder the losses”.

Released today, Japan monetary base rose 42.7% yoy in July. Australia retail sales rose 0.6% mom in June. Swiss SVME PMI rose slightly to 54.3 in July. Eurozone Sentix investor confidence dropped sharply to 2.7 in August, PPI improved to -0.8% yoy in June. UK Construction PMI dropped slightly to 62.4 in July.

Looking ahead, we have a heavy calendar this week with RBA, ECB, BOE and BOJ holding monetary meetings while a number of important economic data due. ECB meeting due Thursday is expected to stand on the sideline in August as policymakers would take time to gauge the impacts of the rate cut in June. Preside Draghi might address the issue related to the impacts of sanctions against Russia on the Eurozone, as well as the banking crisis in Portugal’s banking sector. The BOE would also leave the Bank Rate at 0.5% and asset purchases at 375B pound on Thursday. The quarterly Inflation Report released later this month should give more indications on the monetary outlook of the central bank.

Here are some highlights of the week:

  • Tuesday: RBA rate decision, Australia trade balance; Eurozone services PMI, retail sales; UK services PMI; US ISM services, factory orders.
  • Wednesday: New Zealand employment; Swiss CPI; UK industrial and manufacturing productions; Canada trade balance; US trade balance
  • Thursday: Australia employment; BoE rate decision; ECB rate decisions; Canada building permits, Ivey PMI; US jobless claims
  • Friday: China trade balance; BoJ rate decision; Swiss unemployment; German trade balance; UK trade balance; Canada employment; US productivity

Daily Pivots: (S1) 1.6794; (P) 1.6843; (R1) 1.6878; More

Intraday bias in GBP/USD remains on the downside with 1.6894 minor resistance intact. Current developments indicated medium term topping at 1.7190 and the trend is possibly reversing. Further fall should be seen to 1.6692 key support level next. On the upside, above 1.6894 minor resistance will turn bias neutral and bring consolidation before staging another fall.

In the bigger picture, price actions from 1.3503 (2009 low) are treated as consolidations to long term down trend from 2.1161. Based on unconvincing medium term momentum, we’d expect strong resistance from 50% retracement from 2.1161 to 1.3503 at 1.7332 to limit upside and bring reversal. Sustained break of 1.6692 will indicate medium term reversal and would turn outlook bearish for 1.4813 support.

GBP/USD 4 Hours Chart

GBP/USD Daily Chart

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
23:50
JPY
Monetary Base Y/Y Jul
42.70%
41.20%
42.60%

1:30
AUD
Retail Sales M/M Jun
0.60%
0.30%
-0.50%

7:30
CHF
SVME PMI Jul
54.3
56.2
54

8:30
EUR
Eurozone Sentix Investor Confidence Aug
2.7
9.1
10.1

8:30
GBP
Construction PMI Jul
62.4
62.1
62.6

9:00
EUR
Eurozone PPI M/M Jun
0.10%
0.00%
-0.10%

9:00
EUR
Eurozone PPI Y/Y Jun
-0.80%
-1.00%
-1.00%

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