AUD news - page 7
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RBA: End Of An Easing Cycle; AUD/USD Still En-Route To 0.74
Financial markets are pricing in only a quarter chance that the RBA will ease monetary policy this year. Our conviction that the RBA is likely to cut the Official Cash Rate by 25bp later this year has also declined.
However the arguments for more monetary stimulus remain. The RBA has acknowledged that the strong economic performance in the second quarter of this year was due to noticeable contribution from public demand. Given Australia’s fiscal constraint, we do not expect this driver to persist. It is also worth noting that while there are diminishing returns to lower monetary policy, the net effect remains a positive. This is because the average borrower household has two to three times more net interest bearing debt than in net interest earning assets.
On the housing market, the RBA has noted that growth in housing prices had declined at the national level over the past year and that rental vacancy rate had drifted higher. Despite auction clearance rates increasing lately, the number of auctions had declined and remained lower than a year earlier. Housing credit growth has also moderated. We expect inflation in the third quarter (26 October) to remain below the target range of two to three percent as domestic cost pressures including wage growth are expected to remain low for some time. RBA governor Philip Lowe will be speaking on 22 September.
2016 year end AUD/USD forecast: 0.74
On the exchange rate, the Australian dollar is still likely to be lower than higher from current levels in the coming months as financial markets are only pricing in less than 60% probability that the Fed will raise interest rates later this year in December. Our year end AUD/USD forecast is 0.74.
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AUD/USD Moves Marginally Higher Following FOMC Meeting
AUD/USD continued higher following the Fed meeting as the reaction in the currency markets was somewhat mixed with volatile movements in the US Dollar. The Federal Reserve kept rates unchanged as expected by most market participants, and the US Dollar index (DXY) dropped sharply on the announcement, but was seen falling into a range.
The Fed statement was mixed as three Fed members had called for an interest rate hike at the current meeting. Fed Member George has been a strong advocate for a rate hike and was the sole dissenter at the prior meeting, but was joined by Mester and Rosengreen in the September meeting as all three members had voted to raise the target federal funds rate.
The dot plots indicated a downwards revision in future rate hike expectations, while most members saw at least one rate hike by the end of the year. In the press conference, Janet Yellen provided a strong signal, indicating that if the economy were to remain on course, a rate hike later this year would be likely.
The US Dollar index (DXY) has experienced volatility during the economic release as a sharp drop was seen from pre-release levels of 95.89 to a low of 95.52 where a drastic reversal pushed the index to a marginal high above pre-release levels. The index turned lower once again and was last seen attacking lows trading at 95.58 for a loss of 0.43% on the day.
AUD/USD has been recovering higher since last week’s low at 0.7452. The pair continued higher as the Fed statement failed to provide an immediate threat to high yielding currencies. The pair is now seen making a sustained gain above prior resistance at 0.7581 setting somewhat of a bullish tone. The 61.8% Fibonacci retracement measured from early September highs falls at 0.7618 and has held the pair lower during the Fed statement thus far. A further horizontal level is seen at 0.7637, followed by the 76.4% Fibonacci retracement residing at 0.7660.
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AUD/JPY: The Cross To Sell Next Week
AUD/JPY provides an attractive selling opportunity for the week ahead, advises ANZ in a note to clients today.
"Given the policy set announced by the BoJ this week, we think that a test below 100 for JPY is possible, and that likely means that AUD/JPY is set to test lower as well.
Of particular importance for this cross will be the reaction of Japanese investors to a steeper yield curve and positive yields at the long end. We already felt that the carry on offer in AUD was not sufficient to offset the currency risk that Japanese investors needed to take.
A rise in JPY yields could mean that Japanese appetite for foreign bonds wanes somewhat. This would take a leg of support away from currencies like the AUD," ANZ argues.
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AUD/USD Edges Lower to End Four-Day Winning Streak
The Australian Dollar has shown strength in the past week as a four-day recovery added 200 points to the exchange rate prior to a pullback. While other commodity currencies have shown significant losses on the day, AUD/USD remains resilient showing a small loss of 0.30% as the pair was last seen at 0.7618.
The Aussie Dollar is now showing a clear divergence against its commodity currency counterparts as significant developments have been seen in USD/CAD and NZD/USD. Disappointing data out Canada has resulted in a sharp move higher in USD/CAD today, with a late day decline in oil prices further boosting gains. A bullish engulfing print on the daily chart will serve to keep the pair firm in the upcoming week as today’s gain is 20 points shy of completely erasing losses since the Fed meeting. NZD/USD has shown a technical break from a declining trendline dating back to May lows. The development shows increased potential for a broader turn lower following strong gains throughout the year thus far.
The economic calendar has been light on the day, with a single data release pertaining to the pair. Flash manufacturing PMI figures out of the United States were reported at 51.4 falling short of the analyst expectations of 52.1. The data failed to have a sustained impact on the currency pair.
The US Dollar index (DXY) fell into a range today, providing little follow through on the bullish hammer print from Thursday. The index made a high of 95.68 but failed to make a sustained break above resistance seen at 95.64. The level references lows ahead of the Fed meeting this week, and highs in the prior week ahead of the late-week bullish break. DXY was last seen trading at 95.48 for a small gain of 0.11%.
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AUD/NZD: Monetary Policy Divergence: Targeting 1.07 Coming Weeks
The AUD has outperformed the NZD in the past week as financial markets are coming to terms that the Reserve Bank of Australia (RBA) is likely to keep monetary policy unchanged this year, while another 25bp rate cut is still expected in New Zealand. Earlier this week, RBA governor Lowe said that the RBA is not an ‘inflation nutter’ and some degree of variability in inflation is inevitable and appropriate. This has raised the hurdle rate of policy easing in the coming months even if inflation in the third quarter remains below the RBA’s 2-3% target range. On the other hand, the Reserve Bank of New Zealand reiterated that further policy easing will be required to ensure that future inflation settles near the middle of their target range.
As monetary policy divergence in Australia and New Zealand is not fully priced in by financial markets, it is likely that AUD/NZD will continue to grind higher towards 1.07 in the coming weeks.
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Australia data - weekly consumer sentiment at 120.6 (from 115.5 last week)
ANZ / Roy Morgan Consumer Confidence Index, for the week ended September 25th
Wespac on why the AUD is heading higher through long term downtrend
Global Head of Market Strategy at Westpac, Rober Rennie on the Australian dollar today
AUD/USD: Breaks Some And Challenges More Resistance
Last week AUD/USD ended above the 100wk moving average for the first time since June 2013. It simultaneously broke above an interior trend line.
Spot has to break resistance from .7650 to .7725 to technically suggest AUD/USD could trend higher.
AUD/USD Recovers as Risk Appetite Improves
News of a possible settlement deal between Deutsche bank and US authorities has brought risk appetite back into the markets, leading to a rally in AUD/USD.
The currency pair has been driven this week by headlines over Deutsche bank and a pending fine from the US Department of Justice. News that the fine may be settled at $5.4bn has led to a jump in the bank’s share, triggering a turn across risk assets.
The pair shows a sharp push higher, despite a bearish engulfing candle from Thursday’s bearish print. On smaller time frames, a technical break was made on Thursday as the pair dropped below a rising channel from Tuesday’s lows and cleared horizontal support at 0.7647. The pair has regained the horizontal level and has erased about 60% of yesterday’s losses, somewhat negating the bearish print.
Data out of Australia indicated a rebound in new home sales as the figure rose 6.1% against a prior reading indicating a decline of 9.7%. Private sector credit rose 0.4% in September, falling short of the expected 0.5% rise.
Out of the United States, the PCE price index rose 1.0% on annual basis, and 0.1% in August. The core figure was reported to rise 1.7% annually and 0.2% monthly.
The decline seen in AUD/USD in the second half of the week has shown initial indications for a turn lower, and in the upcoming week, overhead resistance will be important. A declining trendline connecting April highs with August highs is seen within close vicinity, and while the pair failed to test the trendline this week, there remains potential for a broader turn. The trendline will be critical for a directional bias in the pair, as the weekly and monthly charts have not shown any indication of a turn lower, while the daily chart shows a break below a rising trendline from late May lows.
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AUD/USD forecast for the week of October 3, 2016
The AUD/USD pair went back and forth during the course of the week, showing a slightly positive tone. The area above, namely the 0.7750 level above, is an area that has so much in the way of noise that I do not think that the Australian dollar can continue to go higher at this point. Sooner or later, we should see a drop back to the 0.75 handle, but there isn’t much in the way of room to move at the moment as far as longer-term traders are concerned. With this, it’s probably better to look to short-term charts.