Daily Report: Aussie Stays Soft as RBA Left Door Open for Rate Cut

Aussie stays soft in tight range against dollar in Asian session after RBA signaled in its meeting minutes that the door is still open for further interest rate cut. The central bank noted that “given the substantial degree of policy stimulus that had been imparted, it was prudent to hold the cash rate steady.

” However, the board won’t “close off the possibility of reducing it further should that be appropriate to support sustainable growth in economic activity.” RBA also said Aussie’s exchange rate remained “uncomfortably high” and “a lower level would likely be needed to achieve balanced growth.” That is, boosting growth in other sectors to pick up the slack left by mining investments, which topped.

Also released, conference board leading indicator rose 0.5% in October. Technically, while AUD/USD lost some downside momentum as markets prepare for the FOMC announcement later this week, the near term trend is still bearish for a test on 0.8847 low. EUR/AUD is also staying in tight range around 1.54, holding on to near term bullishness for next projection level at 1.5787.

Elsewhere, markets continue to position themselves ahead of the FOMC announcement on Wednesday, where Fed will decide whether to taper the asset purchase of not. Plus, Fed will also release new economic projections. DOW drew support from 55 days EMA and recovered by closing 129.21 pts higher at 15884.57. But it’s kept well below near term resistance at 16174.5. 10 year yield rose slightly to close at 2.877% but is also held below recent high of 2.932%. Dollar index is hovering in tight range above last week’s low of 79.75. EUR/USD and other major dollar pairs are stuck in tight range. Traders are refraining to commit to either direction for the moment as the odds are equal for tapering or not tapering. More regarding FOMC here in To Taper Or Not To Taper? FOMC Meeting Awaited.

In Europe, ECB president Draghi said in testimony to European parliament that governments needed to step up the efforts to create the banking authority. He expressed the concern that “decision-making may become overly complex and financing arrangements may not be adequate.” And, “these things must be done instantly”, criticizing that “one can’t have hundreds of people consulting on whether a bank is viable or not.” Regarding monetary policies, Draghi noted ECB is “fully aware of the downward risks that a protracted period of low inflation entails.” But he emphasized “medium- to long-term inflation expectations are firmly anchored in our case; they were not in Japan of the early 90s, early 2000s.”

On the data front, UK will release inflation data today and in particular, CPI is expected to be unchanged at 2.2% yoy in November. Eurozone will also release November CPI final and is expected to be unchanged at 0.9% yoy. Germany will release ZEW economic sentiment which is expected to show improvement to 55 in December. Inflation data will also be a focus in US with CPI expected to rise back to 1.3% yoy in November while core CPI is expected to be unchanged at 1.7% yoy. NAHB housing market index will also be featured.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.8922; (P) 0.8945; (R1) 0.8970; More…

While AUD/USD lost some downside momentum, recovery is so far very weak. Intraday bias remains on the downside and the current fall from 0.9757 is expected to continue to 0.8847 low and below. On the upside, break of 0.9166 resistance is needed to signal short term bottoming. Otherwise, near term outlook will stay bearish in case of stronger recovery.

In the bigger picture, price actions from 1.1079 is viewed as a medium term correction. The bounce off from the falling 55 week EMA argues that such correction isn’t over yet. Below 0.8847 will turn focus to 50% retracement of 0.6008 to 1.1079 at 0.8544. Nonetheless, we’d still expect strong support from 0.8066 to contain downside to complete the correction. Meanwhile, break of 0.9757 resistance will revive the case that such correction is already finished and will turn outlook bullish.

AUD/USD 4 Hours Chart

AUD/USD Daily Chart

Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised
23:00 AUD Conference Board Leading Index Oct 0.50%   0.30%  
0:30 AUD RBA Minutes        
9:30 GBP DCLG UK House Prices Y/Y Oct   4.10% 3.80%  
9:30 GBP PPI Input M/M Nov   -0.50% -0.60%  
9:30 GBP PPI Input Y/Y Nov   -1.00% -0.30%  
9:30 GBP PPI Output M/M Nov   0.00% -0.30%  
9:30 GBP PPI Output Y/Y Nov   0.90% 0.80%  
9:30 GBP PPI Output Core M/M Nov   0.00% 0.10%  
9:30 GBP PPI Output Core Y/Y Nov   0.90% 0.90%  
9:30 GBP CPI M/M Nov   0.20% 0.10%  
9:30 GBP CPI Y/Y Nov   2.20% 2.20%  
9:30 GBP Core CPI Y/Y Nov   1.80% 1.70%  
9:30 GBP RPI M/M Nov   0.10% 0.00%  
9:30 GBP RPI Y/Y Nov   2.70% 2.60%  
10:00 EUR German ZEW (Economic Sentiment) Dec   55 54.6  
10:00 EUR German ZEW (Current Situation) Dec   29.9 28.7  
10:00 EUR Eurozone ZEW (Economic Sentiment) Dec   60.9 60.2  
10:00 EUR Eurozone CPI M/M Nov F   -0.10% -0.10%  
10:00 EUR Eurozone CPI Y/Y Nov F   0.90% 0.90%  
10:00 EUR Eurozone CPI – Core Y/Y Nov   1.00% 1.00%  
11:00 GBP CBI Trends Total Orders Dec   11 11  
13:30 CAD Manufacturing Shipments M/M Oct   -0.30% 0.60%  
13:30 USD CPI M/M Nov   0.10% -0.10%  
13:30 USD CPI Y/Y Nov   1.30% 1.00%  
13:30 USD CPI Core M/M Nov   0.10% 0.10%  
13:30 USD CPI Core Y/Y Nov   1.70% 1.70%  
15:00 USD NAHB Housing Market Index Dec   55 54

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