Aussie Firmer after RBA, Dollar Rebound Fades

Market overviews

Dollar turns soft again after momentum for rebound faded quickly. Euro and Swiss Franc are back in control even though they’re still generally range bound. Australian Dollar is following closely after RBA stands pat as widely expected. Recovery is still expected and the central didn’t sound concerned with recent surge in Aussie’s exchange rate. The economic calendar is relative light for today and traders may look beyond to tomorrow’s events.

Technically, Dollar couldn’t confirm a sustainable rebound as EUR/USD recovered after breaching 1.1698 minor support briefly. Situation is similar for GBP/USD while recovered after hitting 1.3013 minor support. AUD/USD is even kept way off 0.7063 support. Nevertheless, these levels will remain in favor for the rest of the week as more important data come in. AUD/NZD is a pair to watch as New Zealand employment is upcoming. With today’s rebound, focus is back on 1.0800 temporary top and break will extend the rebound from 1.0565 towards 1.0880 high.

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In Asia, Nikkei closed up 1.70%. Hong Kong HSI is up 2.16%. China Shanghai SSE is up 0.11%. Singapore Strait Times is up 1.37%. Japan 10-year JGB yield is down -0.0095 at 0.014. Overnight, DOW rose 0.89%. S&P 500 rose 0.72%. NASDAQ rose 1.47% to 10902.80, new record high. 10-year yield rose 0.027 to 0.563.

RBA stood pat, expects uneven and bumpy recovery

RBA left monetary policy unchanged as widely expected, keeping both the cash rate and 3-yr AGS yield target at 0.25%. The central bank also pledged that the “accommodative approach will be maintained as long as it is required”. It “will not increase the cash rate target until progress is being made” on full employment and inflation.

RBA reiterated that the economic downturn is “not as severe as early expected”. However, the recovery is likely to be “both uneven and bumpy” with the coronavirus outbreak in Victoria having a “major effect” on its economy.

In the baseline scenario, output falls by -6% over 2020 then grow 5% in 202. Unemployment rate will hit around 10% later this year due to job losses in Victor. Unemployment rate is expected to gradually decline to around 7% over the following couple of years. Inflation is expected to stay below 2% target over the next couple of years in all scenarios considered.

Suggested readings:

Australia retail sales rose 2.7% in June, dropped -3.4% in the quarter

Australia retail sales rose 2.7% mom in June, above expectation of 2.4% mom. Over the June quarter, however, retail volumes stilled dropped -3.4% qoq. That’s the largest seasonally adjusted quarterly decline since the introduction of the GST in 2000.

Exports of goods and services rose 3% mom to AUD 26.2B while imports rose 1% mom to AUD 28.0B. Trade surplus widened slightly to AUD 8.2B, but missed expectation of AUD 8.8B.

BoJ Kuroda: Risks are high with increasing coronavirus infections outside Tokyo

According to an interview by Yomiuri newspaper, BoJ Governor Haruhiko Kuroda warned that risks to economic recovery in Japan is high. He pointed to the increasing coronavirus infections outside of Tokyo, the capital city. The central bank is considering the extend the March 2021 deadline for lending facilities that supports companies hit by the pandemic. Kuroda also reiterated the options of further easing, including expanding loan scheme, cutting short-, long-term rate targets, ramping up ETF buying etc.

Separately, Tokyo CPI climbed to 0.6% yoy in July, up from 0.3% yoy. CPI core also rose to 0.4% yoy, up from 0.2% yoy, beat expectation of 0.2% yoy. Monetary base rose 9.8% yoy in July, well above expectation of 6.3% yoy.

Fed Evans: Monetary policy is about where it can be

Chicago Fed President Charles Evans said “monetary policy is about where it can be”. Further monetary easing would only be effective once the situation of coronavirus pandemic is cleared. “At the moment, it’s really fiscal policy that needs to be addressing this.”

“Fiscal policy is really fundamental for getting us going,” he added. “The ball is in Congress’ court.” “It’s very important that something be done. If we go very long without somehow addressing the reduction and evaporation of that support, I think it’s going to show up in lower aggregate demand, and that would be very costly for the economy.”

Fed Barkin: Coronavirus created economic pothole becomes sinkhole

Richmond Fed President Thomas Barkin said the “pothole” in the economy created by the coronavirus pandemic has turned into a “sinkhole”. He urged Congress to keep support in place or businesses and consumers will “feel the full brunt”.

“Four months ago, when we did the first stimulus, we thought the economy faced a pothole and the stimulus put a plate over it so we could navigate,” he said. “Now escalation of the virus may be making that pothole into a sinkhole and creating a need for a longer plate”.

He warned, “quickly pulling away the support that consumers and businesses are receiving would be a pretty traumatic move for what’s happening in the economy.” “If Congress takes support away too abruptly … the unemployed, their landlords, the places they shop will then feel the full brunt.”

AUD/USD Daily Report

Daily Pivots: (S1) 0.7083; (P) 0.7117; (R1) 0.7157; More…

AUD/USD is holding in range of 0.7063/7227 and intraday bias remains neutral first. Daily and 4 hour MACDs suggest that a short term top could have been formed. On the downside, break of 0.7063 will turn bias back to the downside for 0.6776, for correcting the whole rise from 0.5506. Nevertheless, above 0.7227 will extend the rally towards 0.7311 long term EMA.

In the bigger picture, rebound from 0.5506 medium term bottom could be correcting whole long term down trend from 1.1079 (2011 high). Further rally would be seen to 55 month EMA (now at 0.7311). This will remain the preferred case as long as it stays above 55 week EMA (now at 0.6789). However, sustained trading below 55 week EMA will turn focus back to 0.5506 low instead.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:30 JPY Tokyo CPI Core Y/Y Jul 0.40% 0.20% 0.20%
23:50 JPY Monetary Base Y/Y Jul 9.80% 6.30% 6.00%
0:30 AUD Retail Sales M/M Jun 2.70% 2.40% 2.40%
1:30 AUD Trade Balance (AUD) Jun 8.20B 8.80B 8.03B 7.34B
4:30 AUD RBA Rate Decision 0.25% 0.25% 0.25%
5:45 CHF SECO Consumer Climate Q3 -12 -39.3
9:00 EUR Eurozone PPI M/M Jun 0.50% -0.60%
9:00 EUR Eurozone PPI Y/Y Jun -3.90% -5.00%
13:30 CAD Manufacturing PMI Jul 47.8
14:00 USD Factory Orders M/M Jun 5% 8%