Despite the fact that the RBA cut interest rates by 25bps to 2.25%, the Australian Dollar was quite bullish yesterday after trimming most of its losses from yesterday. Declining close to 2%, AUDUSD managed to recover from the lows of 0.7791. This low incidentally marks a previous support level which was strong enough to push prices higher.
Of course, we would need to see a weekly close comfortably above $0.781 in order to ascertain a short term move to the upside.
The weekly charts for AUDUSD below show the price action validating the view to the upside. Should we see a close higher, AUDUSD could easily target the previous support at 0.806 to establish resistance at this level before declining lower to resume the larger bearish trend.
The main risk to AUDUSD comes from this week’s US NFP numbers. While it could be a close call to ascertain the outcome, the markets are positioned towards a dip in the unemployment rate, from 5.6% to 5.5%, while consensus is largely mixed in regards to the NFP print, especially considering that the previous three out of four weekly jobless claims came out weaker than expected.
From a longer-term fundamental reasons, with the RBA cutting interest rates, it has practically joined almost all of the major central banks that have a dovish view on the global economy, with the exception of the Federal Reserve of course, going by its January FOMC statement which showed that the Fed members were optimistic of a rate hike anytime after April this year.
The Fed’s view in regards to interest rates, however, is starkly opposite to the general market view, especially when taken in accordance with the global economy. Latest PCE figures showed that while there was an increase in personal income, US consumers, by and large held off large purchases, despite getting a boost from the declining Crude oil prices.
While, we will have to closely monitor the upcoming FOMC meeting minutes later this month, the next FOMC meeting is scheduled for March, where we will also get to see the Fed’s economic projections. This time period, subjective to Crude oil prices will be interesting as it could shift the dynamics. It is a known fact that the falling Crude prices have had an impact on global inflation, including economies such as Australia and New Zealand.
With Crude oil prices currently staging a corrective rally, there is no clear conclusion at least at this point in time if prices have turned around for good or if the rally is going to be short-lived.
For the moment, with the known facts, we can expect the Australian Dollar to continue to push along higher towards the short term price level of $0.806 as long as the US Dollar continues to exhibit weakness in the daily – weekly time frames.
