AUD/USD: 0.95 Holding Despite Dovish RBA Minutes

RBA’s minutes released today reflected a strong bearish stance, but that is not surprising considering that the RBA statement from earlier this month stated that RBA believed that there is “scope for further easing”. The minutes basically highlighted RBA’s reasons on why this is so.

According to the minutes, RBA members noted that international growth will pick up in 2014, but growth in 2013 is weak with decline in inflation spotted in H1 2013. Europe “remain in recession” while US is expected to continue current “moderate” growth path. China is expanding at a “steady pace”, but outlook is weak with controls slated to come in the next few months. Funnily, RBA says that Japan’s economy has “picked up” while optimism remains, but oddly there was no mention of the spectacular collapse in Nikkei 225 and USD/JPY towards the end of May despite the meeting happening after the sharp reversal seen.

Domestic conditions were not any better, with economic growth slower than what is observed in Q1. Business investments have also slowed down in Q1, while mining sector is slated to head lower after next year. Measures for all other industries are at or below historical averages. The only bright light – retail prices which has picked up in Q1 has been observed to slow down more recently, while consumer confidence which was above average has also fallen back to around average levels. Wage price index has grown less than expected, while year end wage growth is below historical average. All these point to a massive slowdown across all industries which is unlikely to reverse within a few months.

RBA agrees, saying that the under trend growth is expected to continue in the near term. On top of this, members think that AUD remains elevated despite the steep decline experienced post May’s rate cut. With RBA saying that scope for further easing has been expanded considering the lower inflation outlook, it seems highly likely that AUD will be able to push lower if RBA can help it.

Hourly Chart
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AUD/USD trade lower following the minutes as expected. From a technical basis, the decline affirms the interim resistance of 0.957 which helps to confirm the break of rising trendline during US session yesterday. Price has found support around 0.952 currently, which a breach potentially opening up 0.947 and subsequent 0.942 if 0.947 is broken. Stochastic reading is currently moving back higher above 20.0, looking likely to form a bullish signal if Signal line points higher as well. If Stochastic indicator is right, then the likelihood of 0.952 holding becomes higher, and a move towards 0.957 would be possible once again. However, as long as price fail to break 0.957, the decline from Jun 14 will remain in play which will allow for retesting of 0.952 in the future even if price fail to break it this time round.

Weekly Chart
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Weekly Chart shows price rebounding from the recent low of 0.933 but failing to move back up above the 0.96 resistance. If price is able to climb above 0.96 and preferably above 0.97, we could potentially see bullish acceleration towards 1.01 as the threat of a bearish breakout would have been negated. Despite the current setback, Stochastic readings remain bullish with both Stoch/Signal line pointing up. However, a proper bullish cycle signal will only be formed if readings clear the 20.0 mark, which will probably translate to price pushing above 0.96/0.97.

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