Aussie Fuelled By Unchanged Rates – Technical Setup Strong Bullish
The Australian Dollar flew higher against the USD, extending its run of gains to five trading days in a row after the Reserve Bank of Australia stood pat on interest rates. Given two previous rate cuts in May and August, the decision by the RBA came as no surprise as the central bank indicated a desire to wait for upcoming data to assess the effectiveness of stimulus measures deployed recently, and the next move by the U.S Federal Reserve later this month.
RBA Governor Glenn Stevens decided to leave the cash rate unchanged at 1.5 percent in his last meeting as RBA governor, stating that “recent data suggest that overall growth is continuing”. The country has witnessed improvements in resource exports, housing construction, tourism and education that have been powered by a local currency that is no longer perched at the peaks of the mining-boom period. Growth in these areas has helped offset a large decline in business investment, but failed to lift subdued labor costs and exceptionally low inflation.
Meanwhile, aggressive policy easing in other parts of the world such as Europe and Japan which are experiencing the impact of zero or negative rates has contributed to about 11 percent appreciation in the Aussie since a mid-January trough. This would “complicate” factors mentioned above which are assisting the economy. Thus, the RBA will pay close attention to the actions of the Federal Reserve, and may be expecting the Fed to lend it a helping hand by raising U.S rates this year, which could help push the AUD lower to levels considered more desirable by the RBA.
The Australian Bureau of Statistics is due to report on gross domestic product (GDP) for the second quarter on Wednesday. The data is expected to indicate a cooling off in growth during the April-June period. Economist forecasts range from 0.5% to 0.6% growth on a quarter-on-quarter basis, compared to the first quarter’s 1.1% increase – which was also the highest level of growth in three years.
The U.S markets will resume trading today after the Labor Day holiday. A solid but not impressive non-farm payrolls report published on Friday may restrain the central bank from unleashing a rate hike at its September policy meeting. Nonetheless, an interest rate increase in December is still on the table as a steady labor market nearing full-employment, is encouraging domestic demand and household spending – the sector that accounts for two-thirds of the U.S economy.
The US ISM Non-Manufacturing PMI for August will be out later today and is forecast to point to a solid expansion in the services sector with little change compared to one month earlier.
Fig: AUDUSD H4 Technical Chart
AUDUSD successfully broke higher through both the descending trading channel and the 23.6% retracement level at 0.76147. The path for further advances is quite clear. Although the RSI index is about to enter the overbought territory, the pair is expected to surge higher as bulls are overshadowing the market. As can be seen from the ADX chart, the +DI is diverging from the –DI, which has taken the index to the level of 35.7980. The MA20 has converged with the MA50 from below. AUDUSD can be expected to retest the resistance at 0.76900
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