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Aussie falls on RBA rate cuts
The Australian dollar fell against its major counterparts after Reserve Bank of Australia unexpectedly cut its main cash rate by 50 bps to 3.75%. Market expected the bank to be less dovish and to lower rates by 25 bps to 4.0%.
According to bank officials, for the next two years the inflation will be lower than forecasted earlier but still within RBA's target range of 2-3%. The housing market remains subdued (Q1 House Price Index fell -1.1% vs. 0.4% decline forecasted).
AMP Capital Investors: A 25 bps cut would be meaningless, whereas a 50 bps move will lead to decent reduction in borrowing costs. It probably needs a couple more cuts going forward; we will probably see cash rates down to 3.25% by the year end.
RBC Caital Markets: It leaves the door open for further easing. Growth was obviously lower than they expected and their inflation forecast will be marked lower on Friday.
In a year-over-year comparison Australian RBA Commodity Index decreased 4.2% in April, following a 2.7% rise in March. Manufacturing PMI in China, Australia’s important trade partner, has disappointed investors after falling to 53.3 vs. 53.6 expected.
AUD/USD fell to $1.0312 on today’s negative data. However, some analysts still believe the AUD dip presents a buying opportunity. Support for the cross lies at 1.0300 (strong psychological support) and 1.0246 (low April 24) levels, while resistance - at 1.0346 (21-day MA), 1.0357 (200-day MA) and 1.0445 (100-day MA).
Cable drops on PMI data
According to the data released today, U.K. Manufacturing PMI declined in April to 50.5 compared with the consensus forecast 51.4.
Everyone who follows the issue remembers how March data positively surprised the markets with 51.9 reading (the index is above 50, so the industry expands). Economists explain the slowdown with a sharp decline in export demand. The easing of new orders from the US and Asia is worrying as a potential risk to continued growth, as these have helped to balance out weaker demand in recent months.
USD/GBP has slipped to the 1.6200 level after demonstrating an impressive growth as of late. The next support for the cable lies at 1.6153 (low Apr.27) and 1.6082 (low Apr.25). On the upside, a break above 1.6298 (Upper Bollinger) would bring 1.6304 (high Apr.30) and then 1.6335 (high Aug.31).
Analysts: how to trade EUR/GBP?
The oversold EUR/GBP strengthened to the 0.8170 area after U.K. Manufacturing PMI came out below expectations. The indicator dropped from 51.9 (revised from 52.1) in March to 50.5 (consensus of 51.5).
Analysts point to resistances for the cross at 0.8170, 0.8215 and 0.8265 (high March 17). On the downside, support lies at 0.8145, 0.8125 and 0.8100.
Commerzbank: EUR/GBP is likely to stay below the strong support 0.8220 (low Jan.9)
Strategists at Danske Bank recommend selling the cross at current levels for 0.8067 objective and with a stop at 0.8228.
U.S.: events to watch
The greenback weakens against its major peers before the U.S. ISM Manufacturing PMI release. According to Bloomberg survey, manufacturing in the U.S. probably expanded at a slower pace in April than a month earlier (consensus-forecast 53.0 vs. 53.4 in March).
A further economic expansion of the U.S. economy may require faster growth both in manufacturing and service industries. However, unfavorable conditions in the global economy sap demand on U.S. production.
UniCredit Group: Manufacturing is slowing down a little bit, but it did have a pretty good first quarter, partly because of the car industry. The U.S. economy really needs to see a stronger goods-producing sector this year.
The Fed’s dovish hints after the U.S. Q1 GDP below expectations raise speculations on the further policy easing. Later today three FOMC members will deliver speeches; construction spending in March may rise for the first time in three months (0.5% gain forecasted after a 1.1% drop in February). On Friday non-farm payroll figures will be next to offer investors the clues on the prospects of the U.S. economy.
Comments on EUR/USD
EUR/USD is going up ahead of U.S. data releases. Market is expected to follow these indicators after yesterday’s weaker than expected data placed the U.S. economy’s recovery in doubt. Any sign of weakening is likely to increase talk of further monetary easing by the Federal Reserve.
However, many analysts don’t expect the interest cuts hike in the nearest future.
Merrill Lynch Wealth Management: With the economy still growing above 2%, calls for further quantitative easing (QE) will likely fall on deaf ears, at least for now.
The prospects of the cross still remain unclear; however, in a longer period most analysts expect EUR/USD to decline. Europe’s problems seem to be endless – perhaps, Spain is not the last country to face the fiscal problems.
EUR/USD is trading in the $1.3270 area (the highest since April 3), despite the woes connected with the euro zone. If the cross manages to close above the $1.3270 level, a rally toward the $1.3368 may be unfolding. A close back below that trend line would strengthen resistance and suggest more range-trade ahead.
Resistance for the pair lies at 1.3281 (Upper Bollinger), $1.3283 (high Feb.29), $1.3368 (high Apr.3) and 1.3385 (high Mar.27), while support – at $1.3159 (21-day MA), $1.3157 (low Apr.27) and $1.3115 (100-day MA).
Analysts: outlook for USD/CAD
According to the Royal Bank of Canada, the greenback may reach an eight-month low versus a Canadian dollar (C$0.9788) after dropping to a fresh low for this year. The pair has already slid below the C$0.9842 level (previous 2012 low).
RBC Capital Markets: The decline has resolved a multi-month trading range to the downside, exposing the August 31, 2011 low. This development confirms that bearish sentiment still remains prevalent for the dollar versus the loonie.
However, this week the USD/CAD bounced back to C$0.9890 area after the unexpected contraction of nation’s GDP.
TD Securities: Yesterday’s disappointing GDP figures might pause any intention by the BoC of rising the overnight rates. The market is consolidating ahead of another push higher towards C$0.9950.
U.S. Manufacturing PMI beats forecasts
The U.S. ISM Manufacturing PMI came out better than expected (54.8 vs. consensus-forecast 53.0 and 53.4 in March), pushing the greenback higher against its major counterparts. Positive PMI figures confirm the rebound of biggest economy in the world, lowering fears of the new policy easing required to stimulate the economy.
However, construction spending in March dell 0.1% vs. a 0.5% growth expected. Later today three FOMC members will deliver speeches; on Friday non-farm payroll figures will be next to offer investors the clues on the prospects of the U.S. economy.
Aspen Trading: recommendations on AUD/USD
The Australian dollar fell against the greenback after Reserve Bank of Australia unexpectedly cut its main cash rate by 50 bps to 3.75% yesterday.
Analysts at Aspen Trading Group are convinced that the downward pressure on the AUD/USD is set to continue. In their view, the Australia’s economy may require more rate cuts on the back of problems in the housing sector and low inflation figures. The U.S. dollar, on the contrary, is strong on yesterday’s positive Manufacturing PMI report (54.8 vs. consensus-forecast 53.0 and 53.4 in March) and seems to have bright prospects.
Strategists recommend entering the trade at $1.0330 with a stop at $1.0500 and a target of $1.0000.
Commerzbank: technical comments on USD/CHF
Analysts at Commerzbank expect the USD/CHF to drop to the 0.9000 area, ahead of 0.8948 (200-day MA). In their view, the downside pressure on the cross may be eliminated only if it breaks through the key resistance, lying at 0.9191.
“Slightly longer term, we view the price action this year as a consolidation, but it is possible that this will extend to 0.8834/the 55 week ma prior to the resumption of the bull move”, analysts say.
Swiss PMI, released today, came out below expectations, pointing at the industry contraction (46.9 in April vs. consensus forecast 51.6 and 51.1 in March).
On Tuesday 08:45 GMT USD/CHF is trading at 0.9124.
Revived debt woes weigh on the euro
On Wednesday, May 2, market sells the common currency after data showed euro zone manufacturing shrank and unemployment rose in Germany, adding to concern that the new wave of the debt crisis has come.
Europe’s Final Manufacturing PMI fell to a 34-month low of 45.9 in April from 47.7 in March (a reading below 50 indicates contraction).
The number of unemployed people in Germany grew by 19K in April to 2.87 million compared with 9K forecasted and a 13K contraction in March. Seasonally adjusted unemployment rate remained unchanged at 6.8%.
However, U.S. ADP Non-Farm Employment release also surprised the market on a downside: actual 119K of 175K forecasted. The real NFP figures, eagerly awaited by the market, will be released on Friday (consensus 176K vs. previous 120K).
Many analysts expect Mario Draghi to give a hint at a further QE at the ECB Press Conference held tomorrow. The central bank will keep its benchmark interest rate at a record 1%, according to Bloomberg survey. Moreover, market expects Spain to sell 3- and 5-year notes tomorrow.
Westpac Banking Corp: Draghi may begin to hint that the outlook for the European economy is clearly beginning to deteriorate again. Within the next couple of months, the possibility of further rate cuts from the ECB is rising.
GFT Forex: We have very bad purchasing-manager indexes and the first sign that Germany is cracking. The gangrene has spread from the periphery to the core. If Draghi hints that there will be more easing to come, the euro may be vulnerable and fall to the $1.30 level.
EUR/USD dropped to $1.3120 (lowest since April 23) on Wednesday due to euro zone’s statistics, but then bounced back to $1.3156 on disappointing U.S. employment data.