AUDUSD A Buy After RBA Rate Hold Ignites Sharp Rally

On Tuesday (7/6), the Reserve Bank of Australia decided to leave its benchmark cash rate unchanged at 1.75%, after cutting the rate by 25 basis points at its last meeting in May. After the announcement widely expected by economists, the Australian dollar jumped sharply higher, following the recent up-move in the last several days.

However, earlier this week, the Melbourne Institute had published the MI Inflation Gauge for last month. The statistics for May just rose by 1 % on a year-over-year basis, in comparison with an increase of 1.5% in April. The decline of inflation was brought about by low wage growth and cost pressures. Hence, worries over another rate cut in upcoming months are still lingering in the minds of investors as weak inflation weighs.

Meanwhile, Brent crude prices are still moving in an uptrend and holding above $50 per barrel, as market sentiment remains strong due to pipeline attacks in Nigeria, which dragged down the country’s crude output by an estimated 170,000 barrels per day. The oil price rallying is good news for energy exporting countries like Australia.

In the US, according to a report released last Friday, the private sector created 38,000 jobs in May, well below the estimated number of 159,000 jobs. This was the slowest pace in US employment change since September 2011. Therefore, in a speech on Monday,  FED Chairwoman Yellen tried to dampen speculation on a weak greenback as stating that rate hikes are still in the plans for this year. As of the moment, the odds for raising rates at FED’s June meeting have lowered to only 2%, while July odds for a rate hike are at 27.5%.

The dollar index DXY, which tracks the greenback against a basket of six major currencies, today edged down to 93.81, wallowing around a three-month low.

Markets currently are awaiting for U.S Revised Nonfarm Productivity data for the first quarter of 2016. The change in labor efficiency, excluding the farming industry, is estimated to come in at -0.6%, compared with a previous reading of -1%. The market also braces for signs of recovering U.S. oil production after weekly data from Baker Hughes showed that U.S. drillers added nine rigs drilling for oil the second time this year.


Fig. AUDUSD D1 Technical Chart

The Aussie is on course to strengthen against its US counterpart since the end of May, leading the pair to fly high from the support of 0.71411, the lowest level in over three months. The stochastics chart shows that the pair has been in the overbought territory for some time now, but the %K line (blue line) is still heading higher, refusing to cross the %D line (red line). The Parabolics band moving under the price chart may support the pair to climb further.

Trade suggestion

Buy stop at 0.74573, Take profit at 0.75089, Stop loss at 0.74144

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