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Aussie Soft After RBA On Hold, Dollar Rally Extends

Published 09/02/2014, 02:42 AM
Updated 03/09/2019, 08:30 AM

Aussie weakened in Asia session today following broad based rally in the greenback. And Aussie stays weak after RBA left rates unchanged at 2.50% as widely expected. The central bank maintained the neutral stance that "the most prudent course is likely to be a period of stability in interest rates." In the accompanying statement, RBA maintained the forecast that growth will be "a little below trend" over the year ahead. But it also noted improving business conditions and recovery in household sentiment. It also noted that the labor market has "a degree of spare capacity" and it will take some time for unemployment to decline consistently. And, it maintained that inflation would be consistent with target even in case of depreciation in exchange rates. Overall, the statement offered nothing new to the markets. Also released from Australia, current account deficit widened to AUD -13..7b in Q2, building approvals rose 2.5% mom in July.

Elsewhere, dollar strength is the generally theme so far this week. In particular, USD/JPY jumps above 104.80 and is heading back to 105.41 high. The dollar index extended its recent rally and hit as high as 82.93 so far today. Near term outlook stays bullish for 161.8% projection of 78.90 to 81.02 from 79.74 at 83.20 next. Based on current momentum, the current rally might have a test on 84.75 key resistance. We'll be cautious on strong resistance from there to at least bring a pull back, though. Meanwhile, outlook will stay bullish as long as 82.31 holds in case of retreat.

US Dollar Index Daily Chart

Elsewhere, Japan monetary base rose 40.5% yoy in August, labor cash earnings rose 2.6% yoy in July. Looking ahead, Swiss GDP is expected to show 0.5% qoq growth in Q2. UK construction PMI is expected to drop to 61.5 in August and any downside surprise there could trigger some volatility in the markets. Eurozone PPI is expected to drop further to -1.1% yoy in July. ISM manufacturing index will be the main focus in US session and is expected to drop slightly from 57.1 to 56.8. But that would still be the second highest reading this year. A point to note is that employment component jumped sharply to 58.2 in July and could retreat a little bit. But any upside surprises would trigger further rally in the greenback.

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