Last night, the Reserve Bank of Australia kept interest rates steady as expected at 3.0%, the highest level among the G-7 currencies. The initial reaction was a spike higher as some thought the bank may sneak in a surprise cut, but that was quickly erased as the central bank did not rule out a rate hike for the next meeting. Economic growth is expected to be below the trend and with inflation not an issue, we may see a rate cut next meeting if conditions worsen.
FUNDAMENTALS
The fundamental argument is mixed. You have reports that could suggest a strong Aussie-dollar as $190 billion might come to Australia to fund natural gas projects. Then you hear reports that the iron-ore, Australia’s largest export to China may have a severe correction this year. Retail Sales have fallen off and consumer confidence has been contracting. On the other side, we have business conditions and confidence improving.
THE CHARTS
Looking at the charts, you can see on the daily chart below that the AUD/USD pair has failed a few times breaking above the 1.06 level. This key resistance barrier was respected despite the Chinese economy doing better. Price is currently trading near the key 1.0380 support level and we could potentially see further downward pressure if retail sales (released tonight) and employment (released tomorrow) weaken.
If we see price break below the 1.0350 level, bearish momentum may take the pair towards the 200-day SMA @1.0309. Eventually, we anticipate a further corrective move lower targeting the 1.02 level. If we see a respect a corrective bounce, upside targets may be limited to the 1.0450 region.
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