RBA Governor lifts bar for rate cuts

The Aussie continued to strengthen against the USD yesterday in the aftermath of RBA’s interest rate decision and during today’s Asian session got a helping hand from RBA Governor Lowe in his speech. The RBA Governor stated that he can see the case for further easing but there are risks and that benefits right now do not outweigh risks, yet that could change. Specifically, he stated that “If the unemployment rate were to be trending in the wrong direction and there was no further progress being made towards the inflation target, the balance of arguments would change,”. Also, Governor Lowe stated that he would be surprised to see negative GDP this quarter, while at the same time placed particular weight on the Australian labor market. Practically the comments were seen as lifting the bar for any future rate cuts, forcing the market to review its expectations for a possible rate cut in May. We could see Australia’s financial data play a more decisive role in the next few months and we expect that the release of tomorrow retail sales growth rate could keep Aussie traders busy. AUD/USD continued to rise yesterday as per our prior analysis, breaking the 0.6723 (R1) resistance line, now turned to support. Some bullish pressures could still be present, yet market sentiment could turn as during tomorrow’s Asian session, we could see the Australian financial releases having an adverse effect on the Aussie. Should the pair come under the selling interest of the market, we could see it breaking the 0.6723 (S1) support line and aim for the 0.6685 (S2) support level. On the flip side, should the pair’s long positions continue to be favoured by the market, we could see it breaking the 0.6755 (R1) resistance line and aim for the 0.6790 (R2) resistance level.

JPY retreats despite Coronavirus worries

The USD marked some gains against the JPY yesterday and during today’s Asian session despite market worries for the new Coronavirus lingering on. The unwinding of the safe haven’s value came despite the death toll rising and actually claiming its first victim in nearby Hong Kong. Analysts tend to note that China’s efforts to contain the spreading of the disease, seem to support market confidence. The World Health Organization stated that it is possible to contain the virus as 99% of cases are in China which took drastic quarantine measures. Also, it should be noted that China also took measures to stabilize the financial system by injecting 243B USD for additional liquidity. Should the market’s confidence continue to strengthen we could see safe havens weakening, while commodity currencies could strengthen. USD/JPY rose yesterday clearly breaking the 109.00 (S1) resistance line, now turned to support. We could see the pair rising further should the market’s confidence get another boost, albeit a possible correction could also be in the cards for the pair’s price action. Should the pair come under the control of the bulls once again, we could see it aiming if not breaking the 109.70 (R1) resistance line and aim for 110.35 (R2) resistance level. If the bears dictate the pair’s direction, we could see it breaking the 109.00 (S1) and aim for the 108.35 (S2).

Other economic highlights today and early tomorrow

During the European session, we get from the UK the final services PMI reading for January and from the Eurozone a number of final PMI readings for January as well as the retail sales growth rate for December. PPI rate for December. In the American session we get from the US the ADP employment figure for January, the trade balance for December, the ISM non-manufacturing PMI for January and the EIA crude oil inventories figure. During tomorrow’s Asian session we get Australia’s retail sales growth rate for December. As for speakers, ECB’s De Guido’s, ECB President Lagarde, BoC’s Wilkins, Fed’s Brainard and BoJ’s Masai speak.

AUD/USD 4 Hour chart