Central banks are becoming more Hawkish and there are a few like the RBNZ who have started to reduce their extraordinary measures used to support economies during the pandemic. The RBA is keen to keep to its timetable of reducing asset purchases as the Australian economy fares better than expected.
The good thing about looking at the forex heatmap each morning and night is that you can get a quick snapshot of what the overall forex space is thinking. Are traders’ bullish risk? Are they bullish on Europe? Are they looking to move into safe havens because they are unsure of the current underlying market conditions? This tells you more about what traders and investors are currently thinking than if you were to watch half an hour of the financial media. Currently, traders are bullish on the Antipodeans. Is it because China has started spending heavily on Iron Ore and Coal in a new infrastructure Bill? No. It’s because the central bankers from Australia and New Zealand are looking to keep their economies from overheating and they are telling markets that they will at the nearest opportunity remove stimulus and lose monetary policy. To be fair the RBNZ actually started a meeting ago, but the RBA is only using rhetorical speak thus far.
So what did the RBA do last night that got traders excited? In their statement they say: At its meeting today, the Board decided to:
maintain the cash rate target at 10 basis points and the interest rate on Exchange Settlement balances of zero percent
maintain the target of 10 basis points for the April 2024 Australian Government bond
continue to purchase government securities at the rate of $5 billion a week until early September and then $4 billion a week until at least mid-November.
So, nothing’s changed. Other than the idea that they will taper assets purchases from September rather than delay that idea. That will be a big reaction point next month if the RBA does delay.
Yesterday we discussed the vaccination uptake in Australia, and it is pitifully low compared to England. Now maybe the Australians have the right idea but the wrong policy, as the government insists on shutting down the economy and the citizens insist, they don’t need the vaccine. Something will have to give as the RBA went on to say: The economic recovery in Australia has been stronger than was earlier expected. The recent outbreaks of the virus are, however, interrupting the recovery, and GDP is expected to decline in the September quarter. The experience to date has been that once virus outbreaks are contained, the economy bounces back quickly.
Australia sounds like it is full of potential if they could just get a handle on the virus outbreaks.
0.7600 on the AUDUSD chart was an important level of support that eventually gave way as the US dollar appreciated against the other crosses. 0.7300 became the next important floor that AUDUSD buyers were prepared to defend. Or was it coincidentally the number the AUDUSD had arrived at when the DXY peaked?
Currently, the traders on the ActivTarder platform are bullish on the Australian dollar versus the US dollar but bearish of the NZD. Which is counter-trend to mainstream economics which says that the currency should rise as monetary policy tightens. Or becomes more Hawkish. I would say the RBNZ are more Hawkish than the RBA today.
Using the H1 time frame and the Stochastic Oscillator I would be tempted to short the AUDUSD intraday and fade this pump higher. I don’t see the US dollar particularly rising into the NFP etc. this Friday but I think this Aussie move is fake. The Stochastic is showing negative divergence, the Daily is showing price running into previous market Resistance structure and the rising channel is likely to break lower. Mean reversion rather than a trend this week as we do have some Tier-1 data out from tomorrow.
Tonight, the New Zealand employment data may move the NZD crosses, so based on this morning, I will be keen to see if there is a reversal on the data if it disappoints analysts’ expectations. The rest of the economic calendar isn’t traditionally market moving in terms of setting a trend.
A US bipartisan infrastructure bill is a trend-making data point and we’re closer to getting a sign-off on that. President Biden said last night "I had to make some compromises, but it's going to make a gigantic difference," and that the legislation will "transform" the US economy if it is passed. The US dollar is also on pause due to the debacle around political football that is the US debt ceiling. The Treasury Department will begin conducting emergency cash-conservation steps. The so-called extraordinary measures will allow the US Treasury to pay off the government’s bills without issuing new debt for up to three months. That should buy Congress enough time to raise or suspend the debt ceiling. Then Congress also has to come up with a new budget by the end of September, so for all the talk of spending, some debt talks are really needed too.
The DXY hasn’t taken out a previous day’s low, so if that were to occur today, I would be looking for a continuation lower back towards the $90 level.
If the dollar did break lower the energy complex would again have room for the upside to test. Oil has found the daily 50 ema acting as dynamic support and is primed for a pump higher.
The UK’s FTSE100 is looking very bullish within its current trading range as it prints some fairly large range green candles and today has been a good start to proceedings. Generally, equities are pushing higher on good earnings and the UK is doing well too. I have extensions higher that breach the 8000 level so if all stays equal, we could be buying a breakout soon. There are some clear overhead resistance levels to be mindful of thought and a good timing opportunity will occur when the US equities start making new all-time highs again. The US infrastructure bill and good coronavirus data will be catalysts.