RBA’s interest rate decision in focus

Aussie traders are expected to keep a close eye on the release of RBA’s interest rate decision next Tuesday. We note that the market seems to expect the bank to proceed with a 25 basis points rate cut and AUD OIS imply a probability currently of 88% for such a rate cut, while the other 20% seems to imply that the bank may remain on hold. We see the case for the bank to proceed with a rate cut on Tuesday’s meeting as the CPI rates for Q4 slowed down considerably despite some resilience in November and December. At the same time, the Australian employment market seems to remain rather tight with the unemployment rate dropping over the second half of 24, despite a tick up in December. Should the bank hold a dovish tone in the coming week, implying that more rate cuts are to come, we may see AUD weakening, while should the bank show increased uncertainty for more rate cuts to come, we may see the Aussie getting some support.  

AUD/USD rose on Friday and during today’s Asian session, reaching two month highs by testing the 0.6365 (R1) resistance line. We also note that the RSI indicator also rose nearing the reading of 70 and implying a strengthening bullish sentiment among market participants for the pair. On the other hand, AUD/USD’s price action is flirting with the upper Bollinger band, which may be another signal of a bullish sentiment, yet at the same time may also imply that in an effort to respect the boundary, the pair’s upward motion may slow down or that the price action may even correct lower. Should the bulls maintain control over the Aussie, we may see AUD/USD breaking the 0.6365 (R1) resistance line and start aiming for the 0.6665 (R2) resistance level. Should the bears take charge of the pair’s direction we may see AUD/USD reversing course, breaking the 0.6170 (S1) support line, with the next target being set at the 0.5980 (S2) support base.

Also in the FX market we note the strengthening of JPY further fuelled by the unexpected acceleration of Japan’s GDP rate for Q4 24. The strengthening of the Yen forced USD/JPY to continue to correct lower during today’s Asian session, aiming for the 151.35 (S1) support line. Nevertheless, despite the bearish tendencies of the pair and for the time being, we tend to maintain a bias for a sideways motion between the 154.65 (R1) resistance line and the 151.35 (S1) support level. We note though the drop of the RSI indicator which implied an enhancing of the bearish sentiment among market participants for the pair. Yet for an adoption of a bearish outlook for USD/JPY we would require the pair to break the 151.35 (S1) support line allowing the pair to form a lower trough than the one formed on the 7^a. of February and start aiming for the 148.65 (S2) support level. On the flip side a bullish outlook we would require the pair to break the 154.65 (R1) resistance line and start aiming for the 158.45 (R2) resistance level.     

Other highlights for the day:

Today we get Canada’s House Starts for January while Philadelphia Fed President Harker speaks.

As for the rest of the week:

On Tuesday, we get UK’s December employment data, Sweden’s January CPI rates, France’s final HICP rate for January, Germany’s ZEW indicators for February and Canada’s CPI rates for January. On Wednesday, we get from Japan December’s machinery orders and January’s trade data, from Australia the wage Price index for Q4, from New Zealand we highlight the release of RBNZ’s interest rate decision, UK’s CPI rates for January and from the US the release of the Fed’s January meeting minutes. On Thursday we get Australia’s January employment data, UK’s nationwide House prices, the US weekly initial jobless claims figure, the US Philly Fed Business index for February and Euro Zone’s preliminary consumer confidence for February. On Friday we get the preliminary PMI figures for February of Australia, Japan, France, Germany, Euro Zone and the US as well as Japan’s CPI rates, UK’s retail sales for January, France’s business index for February, Canada’s retail sales for December and the US final UoM consumer Sentiment.

AUD/USD Daily Chart

• Support: 0.6170 (S1), 0.5980 (S2), 0.5700 (S3)
• Resistance: 0.6365 (R1), 0.6665 (R2), 0.6940 (R3)

USD/JPY Cash Daily Chart

• Support: 151.35 (S1), 148.65 (S2), 145.95 (S3)
• Resistance: 154.65 (R1), 158.45 (R2), 161.90 (R3)

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