Originally published by AxiTrader
Yup.
It really does appear that Australian dollar bulls bought the notion that we are in the midst of a global push by central bankers to co-ordinated a more hawkish message on monetary policy. That's the only conclusion I can draw from the price action that we saw after 2.30pm yesterday when RBA governor Lowe delivered not the uber-hawkish statement that would fit the co-ordination narrative but rather took an even handed positive but cautious approach to the outlook for the Australian economy.
To my read he was decidedly neutral, almost aggressively so - it that's at all possible.
As I wrote earlier in my Overnight Wrap I say that because I was a little surprised he didn't nod to the improved jobs data recently. But I also would bet that was the crucial omission that saw traders read his statement as dovish. He likely crafted it with a neutral bias and left this out so as not to convey any hint of an upward rate trajectory knowing the import of that for the Australian dollar.
He succeeded and the Aussie is back at 76 cents not cruising atop 77.
The takeaway is that we have a central bank that believes the economy is picking up toward its forecasts. We have a central bank which retains a confidence in those forecasts and the global backdrop. But we also have a central bank that knows there is still plenty of slack in the jobs market and that households are holding plenty of debt. Australia is not Europe, the UK, Sweden, or Japan. But the RBA is likely happy to let the rabbit run a little until it sees more evidence the transition it expects is actually materialising.
So rates are likely to be on hold for some time.
But it is also worth talking about my oft stated concerns about Australian households, their debt, and consumption plans. It is fair to say that the last two retail sales data points, +1% and +0.6%, and the continued growth in inflation have assuaged my fears for the moment.
Rather than write 500 words this tweet from yesterday probably sums things up best.
The key here is that once again it seems like business conditions and the NAB business survey more broadly remains the best guide to the Australian economy.
And it's also important to remake a point I made some weeks ago when I realised I might have been a bit negative on the economy - for the moment anyway. That is while US data collapsed, driving the US economic surprise index to 6 year lows, while UK data collapsed, while European, Japanese, and Chinese data flow all dipped Australia's did not.
It reflects that data has been consistently beating expectations for the best part of three months now. Traders have been taking note. So maybe I'm being a little harsh on them for thinking thee RBA may have acknowledged that yesterday. I probably am.
Looking at the price action then, it's clear we learnt more about traders than we did the RBA yesterday. Traders were clearly short term long. We know from the CFTC data that speculators have been building longs once more. Not too big a position but a bullish slant nonetheless.
That's not going to change in a hurry unless the Aussie starts to break down again. And in many ways that depends on the US dollar, and especially its dataflow and this week's non-farm payrolls release.
0.7580/85 is now the key support as it represents the 38.2% retracement of the rally from 0.7370 to 0.7712. Then it's 0.7535/41 which is both the old resistance level, and the 50% retracement level of the bigger move. The 200 day moving average is at 0.7527 this morning.
A break below here, should it eventuate would likely see a cascade lower.
Topside resistance is the old uptrend line at 0.7625/30 and then 0.7650/60, and of course 0.7705/15.
Here's the daily chart:
Have a great day's trading.