It has been a topsy turvy day for AUD/USD during early Asian trade. Earlier (8.30 SGT, 7.30pm EST), the Reserve Bank of Australia downgraded their growth and inflation forecasts in its latest statement. RBA said in the quarterly report that “soft outlook” is due to a number of factors – namely the Mining Industry peaking in 2013, Fiscal Consolidation and the overvalued Aussie Dollar. Though Chinese economy looked “more positive in recent months”, RBA believes that 2013 growth will be lower at 2.5% compared to the initial 2.75% forecast. CPI is expected to come in at 3% vs an initial estimate of 3.25%.
This news did not really surprise investors as the tone of this quarterly statement is exactly the same as the one Glenn Stevens said on Tues, when the RBA held rates but issued a “act if necessary” mandate. We already knew that the Australia economy is going to be soft this year, as many believed that the mining sector has already peaked back in 2012 if not the later months of 2011, much earlier than RBA’s forecast. Despite the foreknowledge, AUD/USD traded lower following the news, as traders are simply looking for any reasons they can find to short AUD/USD following a dovish RBA tone.
5 Minutes Chart
Price broke below the previous swing low around 1am SGT, and went lower to sub 1.026 levels. Prices subsequently rebounded with the same swing low around 1.275 acting as resistance, and was looking to head lower before Chinese Trade Balance came in and denied the bears. Trade balance headline figure came in at a strong US$29.15B vs a consensus estimate of US$24.20. Both Exports and Imports grew tremendously – Y/Y exports grew 25.0% vs 17.3% estimated, and 14.1% previous. Imports grew 28.8% vs 23.5% expected with 6.0% previous. Looking back, these trade balance figures agree with HSBC Manufacturing PMI readings which showed increasing rate of growth versus Chinese official figures, adding yet more unanswered questions as to why the usual “optimistic” Chinese Government have published such a muted figures previously.
These questions aside, we saw AUD/USD immediately rallying higher to test 1.029 short-term resistance and fell short of the 1.03 longer term resistance. That shouldn’t come as a surprise, because fundamentally nothing has changed. As mentioned earlier, traders already knew that China wasn’t going to bust with a hard landing. In fact, the term “hard landing” appears to be passe with journalists and analysts alike abandoning the term late last year when it was apparent that Chinese economy was doing ok. RBA and many other Central Banks/Bankers also have the same sentiment. As such, bullish follow through on strong Chinese news may not last as long as what we are observing right now. From both sentiment and technical point of view, 1.029 and 1.03 remains tough nut to cracks while traders are still focusing on RBA’s dovishness.
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