Aussie Dollar took a small dive this morning following the release of RBA meeting minutes. Prices hit a low of 0.9352 after the minutes revealed that further rate cuts are still possible. However, further reading reveals that the threat of immediate rate cuts is not present, resulting in a strong rebound which sent prices 30 pips higher in the hour that followed.
This is actually not surprising, as it should be noted that this minutes is taken from the 5th November meeting, where RBA ultimately decided not to bring rates lower. Hence it should already be a given that the minutes should not reflect overtly dovish tones. From the minutes, RBA stated that housing prices are expected to rise further, which will reduce the scope for rate cut – as that would be inflationary in nature, and definitely encourage higher mortgage lending and hence even higher prices. Nonetheless, RBA has stated its concern that growth rates remain subdued, implying that they would like to have some form of easing action in the future. This notion gets even stronger when RBA reiterated the fact that AUD is too high – it is clear that RBA want to do something, and right now they are being impeded from cutting rates outright. It may be a long shot, but the possibility of non-conventional easing methods (read: QE) remains, and will help to bring AUD lower while helping growth – killing 2 birds with 1 stone.
Perhaps it is due to this RBA outlook that kept the AUD/USD rally in checked. Then again it is also possible that traders are merely focusing on the weak Aussie economic fundamentals, resulting in an inherent bearishness which pushed AUD/USD back to around 0.937. From a pure technical perspective, prices have broken away from the bottom of the Rising Channel, which weakens the bullish pressure that has been in play since 14th November. The resulting bullish push failed to climb back into to Channel, strengthening bearish sentiment and opens up a possible move towards 0.929.
Stochastic readings is bullish though, with a fresh bullish cycle signal that is in play currently, however it is unlikely that prices will be able to break much higher considering that we have the 0.939 resistance and confluence with Channel Bottom hanging overhead. Furthermore, Stoch curve will be facing “resistances” around 30.0 and 45.0 levels (based on historical interim troughs), hence it will not be surprising to see this fresh bullish cycle being cut short, with both prices and Stoch curve moving lower in the immediate future.
Long term chart is bullish if we take reference from the rally since early Sep. Prices has rebounded from the 0.93 level, with 0.952 as the bullish target and 0.940 as interim resistance. However, longer-term trend (see weekly chart) is actually bearish, and should current rally get capped below 0.952, the likelihood of a Head and Shoulders pattern increases which can potentially bring us all the way to sub 90.0 levels in the months that follow. Right now though, the chance of a bearish from here is still possible as Stochastic curve is also facing its own “resistance” of 35.0. Should Stoch curve breaks 35.0 coupled with a price break of 0.94, the likelihood of a bullish push increases.
But traders should be aware that long-term fundamentals continue to favor a stronger USD (due to eventual QE taper) and a weaker AUD (due to RBA being forced to cut rates or via unconventional easing methods). Hence even in the event that bullish momentum is building, traders should be alert that a bearish pullbacks will be lurking and pouncing when weakness in the bullish momentum is seen.