Aussie gets a boost from RBA’s interest rate decision

As was expected, RBA remained on hold at +0.75% and the Aussie jumped some 40 pips against the USD, in the minutes following the announcement. In its accompanying statement the bank said that it will continue to monitor developments carefully, including the labor market and ease policy if needed to support sustainable growth. Also, the bank cited the trade and technology dispute between the US and China, as an ongoing source of uncertainty, despite recent progress. The bank also stated that the new Coronavirus is another source of uncertainty, as expressed in yesterdays insight session, and that it is too early to estimate how long lasting the impact will be. The bank expects that in the short term, the bushfires and the coronavirus outbreak will temporarily weigh on domestic growth. Overall the statement seems well balanced and traders seem to have gotten a boost as the statement seems to set in doubt a possible rate cut, which the market had priced in. We expect Aussie traders to turn their attention to RBA Governor Lowe’s speech tomorrow for more clues about the bank’s future intentions, before the release of Australia’s retail sales growth rate for December on Thursday’s Asian session. AUD/USD jumped during the Asian session today, testing the 0.6723 (R1) resistance line, yet was unable to break. We could see some bullish pressures continue to affect the pair in the aftermath of the decision, yet should the pair fail to break the 0.6723 (R1), we could see it correcting lower. Should the pair come under the selling interest of the market, we could see it breaking the 0.6685 (S1) support line and aim for lower grounds. On the flip side, should the pair’s long positions continue to be favoured by the market, we could see it breaking the 0.6723 (R1) resistance line and aim for the 0.6755 (R2) resistance level.

Pound tumbles on Johnson’s hard line

The pound tumbled yesterday as Boris Johnson’s speech sparked new worries about the prospects of a UK-EU deal. UK Prime Minister’s speech resembled a harder stance as he mentioned that there is no need to include an alignment of regulations in the deal. At the same time EU’s top Brexit negotiator stated that a deal must include some kind of regulation about the UK following EU standards and that EU boats must have access to UK waters, for fishing purposes. The diverging messages of the two seem to foreshadow tough negotiations ahead and naturally, increased market worries about the uncertainty in the horizon. We expect tensions to increase as the two sides may be setting hard initial positions ahead of the negotiations, which are set to start at the end of February, beginning of March. Hence the situation may become worse before it improves. Should the two sides harden their stance, we could see the pound remaining under pressure. GBP/USD tumbled yesterday breaking below the 1.3015 (R1) support line, now turned to resistance. We would like to see the pair’s price action distancing itself further from the 1.3015 (R1) resistance line, before switching our sideways bias and start calling the bears. Should the pair come under the control of the bulls once again, we could see it aiming if not breaking the 1.3015 (R1) resistance line and aim for 1.3170 (R2) resistance level. If the bears take control, we could see the pair aiming if not breaking the 1.2820 (S1) support line and aim for lower grounds.

Other economic highlights today and early tomorrow

During the European session, we get from the UK the construction PMI for January and from the Eurozone the PPI rate for December. In the American session we get the US factory orders growth rate for December and just before the Asian session starts the API weekly crude oil inventories figure and New Zealand’s employment data for Q4. During tomorrow’s Asian session, we get Japan’s Services PMI for January and China’s Caixin Services PMI also for January. Please note that RBA Governor Lowe is scheduled to speak.

AUD/USD 4 Hour chart