AUD finding solid buying activity

The AUD is seeing relative outperformance in the G10 complex, pushing to a session high of 0.9447 against the greenback, while also finding good buying activity against its New Zealand neighbour.

The RBA released its minutes in Asian trade, however it’s worth bearing in mind that these minutes have effectively been superseded by the recent SoMP (Statement of Monetary Policy) and therefore many will see them as relatively stale. It’s interesting to note that the swaps market is pricing in ten basis points of hikes from the RBA over the next twelve months, whereas the statement still holds a very moderate, dovish bias. It leaves the door open for rate cuts, rather than portraying an inclination towards rises in the future.

Will we see a rate cut?

There is growing discussion from the RBA around the Australian dollar, and once again the bank reiterated its view that the local unit remains ‘uncomfortably high’, while ‘a lower exchange rate would likely be needed to achieve balanced growth in the economy’. Even so, will the RBA cut rates anytime soon to lower the currency? In my opinion, rates are likely to stay at current levels for some time to come. AUD/USD should resume its downtrend when the market gets a firm understanding about when the Fed will cut the pace of its bond-buying programme. Even if the RBA tries its utmost to lower the local unit, the market continues to view this as pure rhetoric. Especially as there is growing interest from the bank in the housing market, given the level of stimulus still expected to filter its way into that space.

Technical drivers

Technically, I am keeping an eye on the 38.2% retracement level of the 5% sell-off from October to November at 0.9456. A closing break of this level could see a further movement to the 61.8% retracement of the move at 0.9572. There should be good supply at 0.9543 (the 6 November pivot high), and a break here would print a higher high and suggest the medium-term downtrend is broken.

In terms of immediate drivers, Chicago Federal Reserve president Charles Evans will be speaking at 7.15pm today (London time). It’s worth keeping an eye on the US dollar, given that Mr Evans is one of the more dovish members of the Fed. I don’t expect him to be overtly dovish (thus causing strong downside pressure on the USD), but he is seen by many as somewhat of a visionary on the board, so traders will be keen to hear his comments.

Good buying activity against NZD

On another note, it’s worth looking at the technical set-up on AUD/NZD: the 1.12 level is once again proving to be a strong buy level for traders, and a close below this level could open up a deeper move lower. However, in the short-term I feel this level will hold, and a move to 1.1350 could be on the cards in the near future, given the positive price action seen on the daily chart.

Spot FX AUD/USD chart

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