The Reserve Bank of Australia released their 5th Feb meeting minutes earlier Today. This was the meeting from which Governor Glenn Stevens mentioned that the RBA is willing to ease if necessary, sending AUD/USD to a downward spiral, reaching close to 1.02 at one point. In this meeting minutes, the same wording is seen – “The inflation outlook, as assessed at this meeting, would afford scope to ease policy further, should that be necessary to support demand.” However this minutes appear to be less dovish as what the market expected it to be. Under the considerations for Monetary Policy, RBA felt necessary to emphasize that they have reduced rates by 175 basis points since late 2011, from which 50 basis points was slashed in Q4 2012. The minutes also highlighted that the stimulus was “continuing to work its way through”, with various parts of the economy “responding to those lower rates”. It paints the picture that RBA is comfortable to keep their hands in the pockets and wait for both domestic and international situation to improve.
Price rallied as likelihood of RBA cutting rates decreases following the minutes. Overnight Index Swaps are pricing less than 20% chance of a rate cut in the next meeting, driving prices higher which has now affirmed the 1.03 support and is looking to pierce through the Kumo. If price manage to stay above the Kumo, the possibility of trading range between 1.032 to 1.037 should be considered. A failure to break out of the Kumo reopens 1.028 floor for interim support as it suggest that sellers are still abundant despite the slightly less dovish minutes.
Weekly chart can be interpreted with an uptrend bias if one is to consider the 0.97 bottom formed back in May 2012. If the uptrend is still in force, current consolidation since Aug 2012 pullback does not negate the uptrend, and overall long-term bias should still be higher. At the very least, the likelihood of current support around 1.03 holding will be stronger in an uptrend. However, if we take a look from 2011, it is hard to label the move within the past 2 years as an uptrend. Another interpretation is to view trend as oscillating, albeit the peaks and the troughs are getting smaller. If that is the case, the likelihood of price trading below 1.03 increases, and we could potentially see price eventually making a move below back to parity.
Fundamentally, RBA has said it themselves through the minutes that Chinese’s economy is improving. Also, domestic economic conditions “have picked up” in the December quarter, with exports improving. Housing market has firmed due to the various rates cuts done in 2012. Talks of Australia meltdown are certainly over-exaggerated. Australia is simply facing slowing growth, which result in softer employment and production. Slowing growth is not a bad thing, especially why put next to all the other suffering economies in the world right now. Aussie has been punching above its weight, and this looks merely a correction to the norm just as the global economy starts to pick up once more. What this mean to AUD/USD is debatable, but one cannot ignore the likelihood of AUD/USD moving back closer to its historical average in such a scenario.
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