RBA surprises the markets by hiking rates

The USD edged a bit higher against its counterparts yesterday, as the ISM manufacturing PMI figure noted another contraction of economic activity for April this time, yet not as wide as initially expected. Hence, we expect traders undistracted now, to turn their attention fully towards the Fed’s interest rate decision on Wednesday. On the flip side, JPY continued its downward trajectory not only against the USD but also against the EUR, against which it reached a 15-year low, as JPY traders remain disappointed by the steadily dovish BoJ, which in turn tends to widen the monetary policy outlook differentials. Overall we tend to maintain the view that the bank under its new Governor Mr. Ueda, is to approach any alteration in its ultra-loose monetary policy settings only with a gradual approach, especially given that Japanese businesses got accustomed over the past years to cheap money. In contrast to JPY, AUD jumped at today’s late Asian session as RBA took the markets by surprise and hiked rates by another 25 basis points, may we remind you that market expectations were for the bank to remain on hold, hence monetary policy differentials widened further in favour of the Aussie today. In Governor Lowe’s accompanying statement the bank stated that “Inflation in Australia has passed its peak, but at 7 per cent is still too high” in explaining its decision to hike rates again after a pause. In its forward guidance, RBA stated that “Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe” which maintains an element of hawkishness in the bank’s intentions. In the European theatre, we note today the release of Eurozone’s preliminary HICP rate for the month of April a rate that may play a key role in ECB’s interest rate decision on Thursday after the mixed signals from the HICP rates of Germany and France. US stock markets ended their day with mixed signals yesterday and we expect traders to continue to navigate between the market worries for a possible recession of the US economy and earnings reports due out. Overall Monday’s opening tended to imply that the positive market sentiment came to a halt and the market is in a make-or-break position, given the packed with high-impact releases due out in the following days. For today we note the release of the earnings reports of Pfizer (#PFE), Lyft and Uber among others.

AUD/USD rallied in today’s Asian session, breaking consecutively the 0.6640 (S2) and the 0.6700 (S1) resistance lines, both now turned to support. We expect some form of a correction lower after the market’s initial reaction to RBA’s rate hike, yet overall the outlook forming seems to lean on the bullish side. Should the bulls actually take charge of the pair’s direction, we may see AUD/USD aiming if not reaching the 0.6790 (R1) resistance line. Should on the other hand the bears be in charge of the pair’s direction, we may see the pair reversing course breaking the 0.6700 (S1) support line and aim for the 0.6640 (S2) support level.

USD/JPY maintained its upward movement, aiming for the 137.55 (R1) resistance line. Given also that the RSI indicator remains above the reading of 70, showcasing the bullish market sentiment yet also warning that a correction lower is also possible, we tend to maintain our bullish outlook for the pair. Should the bulls maintain control over the pair, we may see USD/JPY breaking the 137.55 (R1) resistance line, which would open the gates for the 140.65 (R2) resistance level. Should a selling interest be expressed by the market, we may see USD/JPY reversing course and aiming if not breaching the 135.15 (S1) support line.

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During today’s European session, we note the release of Germany’s retail sales growth rates for March, the UK’s Nationwide house prices for April, the Czech Republic’s preliminary GDP rates for Q1, Germany’s and UK’s final manufacturing PMI figures for April, Eurozone’s preliminary HICP rates for April, while on the monetary front, we note that ECB’s Enria and RBA Governor Lowe are scheduled to speak. In the American session, we note from the US the release of the factory orders growth rate for March and the JOLTS job openings figure for the same month, while the API weekly crude oil inventories figure may be of more interest for oil traders. In tomorrow’s Asian session, we note the release of New Zealand’s employment data for Q1.