The RBA governor meant it when he said last week traders should chill out, come back and see what the data says. The AUD is trading higher against most of its major currency peers as the Australian central bank left interest rates unchanged at 2%, ending up the years with 2 rate cuts to a record 2% low. The decision to keep rates unchanged was widely anticipated by markets, but the upbeat tone in today’s statement is what provided a slight push for the Australian currency as the board judged that the prospects for an improvement in economic conditions had firmed a little over recent months. However, the rally likely to be capped as the central bank still opened for easing in 2016 with outlook for inflation is not solid enough to meet the 2-3% target.
Although some economic conditions improved in Australia, Chinese data and iron ore prices "Australia’s biggest export” will continue to play a source of pressure on the currency if it continued to deteriorate further.
From technical perspective, a break above 0.7283 could lead to test the next key resistance level 0.7382 (Oct High), but a break below the short-term up-trend from 10th Nov can confirm the longer-term downtrend.
China’s manufacturing PMI contracts further
Monday’s decision to include the Chinese currency to IMF’s Special Drawing Rights cheered Chinese officials as the Yuan will hold a 10.9% weighting in the basket next year, which could see large inflows into renminbi assets over the long term but short-term impact is minimal as the USDCNY suggested. Today’s PMI figures just showed the overall manufacturing sector continues to worsen, with official reading of 49.6 missing expectations of 49.8 and continues to show contraction. Meanwhile the private Caixin manufacturing PMI increased slightly to 48.6 in November. Both figures suggest that Chinese officials have more to do in terms of easing monetary policy and fiscal policies further to meet growth expectations next year.
Euro trading slightly higher ahead of PMI data
EURUSD rose slightly today on short covering positions ahead of key PMI releases. The single currency dropped to lowest levels since March testing a low of 1.0556 in a challenge to break below key 1.05. Although Euro traders are on wait and see mode for new expected measures from ECB meeting on Thursday, there is potential to the downside if second PMI readings or German employment data disappoint. GBPUSD also traded higher after the pair broke slightly below 1.50 physiological resistance level yesterday, whether the pair manage to hold above 1.50 largely depends on manufacturing activity figures and most importantly BOE governor Carney’s speech.
On the North American data front, traders will be looking at the Canadian GDP figures followed by the US ISM manufacturing PMI numbers and Fed’s Charles Evans speech, which is going to be one of couple of Fed speeches.