- G10 FX is bound to tight trading ranges this morning
- Markets reflecting back on a very dovish ECB meeting (June is now Live) and yesterday’s FOMC minutes.
- AUD/USD is currently trading at 0.7124 and between a range of 0.7123 and 0.7171.
After a surprisingly soft reading on U.S. core inflation pushed Treasury yields and a softer U.S. dollar lower yesterday, the Australian dollar flatlined near a six-week peak on Thursday as losses on Asian share markets calmed risk sentiment to a degree. In a whole, the AUD is being supported by an unwinding of expectations for a near-term cut in interest rates following a disappointed on Wednesday for the doves when Reserve Bank of Australia (RBA) Deputy Governor Guy Debelle failed to deliver an easing bias in his rhetoric, instead saying it would take time to see how the economy evolved.
Nomura analyst Andrew Ticehurst argued, “these comments leave us thinking that the RBA is open to cutting the cash rate, but it is in no rush and is willing to sit back, perhaps for several months, to see how global developments unfold and how the tensions in the local signals are resolved.”
Meanwhile, the idea of a U.S. recession is heating up in the markets, although yesterday’s FOMC minutes seemed not to note such a risk. Rabobank’s Fed-watcher, Philip Marey, notes that the minutes of the FOMC meeting on March 19-20 showed that muted inflationary pressures and downside risks to the economic outlook made the Committee remove all hikes for 2019 from the dot plot:
“However, the Fed still thinks that the US economy is in a good place regardless(!) In contrast, we expect the US economy to slide into recession in the summer of 2020 and the Fed to cut rates in 2020, after remaining on hold in 2019. (At which point the world’s smallest violin will again be making an appearance.) 10-year yields sub 2.50% even as oil prices look perkier seem to agree?”
Looking ahead:
We have the RBA Financial Stability Review is the semi-annual report (Apr and Oct) detailing the health of Australia’s financial institutions.
AUD/USD levels
Analysts at Commerzbank explained that AUD/USD yesterday eroded the near term downtrend and this has neutralised our immediate outlook:
“The market faces tough resistance, namely 0.7207 (end of February high) and the 0.7197 200 day ma and this continues to cap. We have a short term resistance line at 0.7180. Price action in January was exhaustive – the market charted a hammer (reversal). This suggests the down move ended at 0.6738. Above 0.7295 will target the 0.7394 December high.”
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