Aussie Sinks on Lackluster RBA and Chinese Rates

AUD/USD ANALYSIS & TALKING POINTS

• Previous RBA decision was a coin toss likely pointing to pause in July meeting.
• US data and Fed speak under the spotlight later today.
• Potential golden cross on the horizon?

AUSTRALIAN DOLLAR FUNDAMENTAL BACKDROP

The Australian dollar is on offer this morning against the US dollar even though the greenback remains relatively flat as measured by the DXY index. The selloff stemmed initially from concerns around the Chinese economy as the PBoC cut both the 1-year and 5-year loan prime rates by only 10bps respectively (refer to economic calendar below). In a push to stimulate economic growth, we may see further rate cuts going forward and with China’s low inflation relative to other major global economies, there is little in the way of limitations to continue easing monetary policy. Being a major trading partner with China, the grim outlook will hinder commodity exports from Australia thus weighing negatively on the Aussie dollar.

AUD/USD ECONOMIC CALENDAR (GMT +02:00)

Source: DailyFX economic calendar

The Reserve Bank of Australia (RBA) minutes then followed which highlighted the indecision in the last meeting to hike rates but with the surprise hike, July’s expectations are slightly skewed towards a rate pause as depicted in the table below – following the trend of the Fed. Economic data inputs will be of utmost importance leading up to the meeting as data dependency becomes more and more important for the RBA.

Later today, focus shifts to Fed speak as well as building permit data for the US. Recent releases have ben on the decline but estimates point to a marginal uptick that could be a net positive for the dollar.

RBA INTERST RATE PROBABILITIES

Source: Refinitiv

TECHNICAL ANALYSIS

AUD/USD DAILY CHART

Chart prepared by Warren Venketas, IG

Daily AUD/USD price action is now marginally above the 0.6800 psychological level after slipping below briefly during the Asian trading session. Coming off overbought levels as measured by the Relative Strength Index (RSI) makes the move unsurprising from a technical analysis point of view and has rom to move further. That being said, there may be the possibility of a bullish crossover known as the golden cross where the 50-day MA (yellow) crosses above the 200-day MA MA (blue). This could mean the current downward bias may be short-lived in the medium-term.

Key resistance levels:

Key support levels:

IG CLIENT SENTIMENT DATA: MIXED

IGCS shows retail traders are currently net HORT on AUD/USD, with 51% of traders currently holding short positions. At DailyFX we typically take a contrarian view to crowd sentiment resulting but due to recent changes in long and short positioning, we arrive at a short-term cautious disposition.

Contact and followWarrenon Twitter:@WVenketas