Morning Call #75
RBA lifts rates by 25 basis points - grace period or turning point for the Aussie?
The Royal Bank of Australia (RBA) has hiked rates by 25 bp (15 bp expected) to 0.35% this early morning. That raise was followed by a rally in Aussie which has been already sold partially by the market. Of course, the obvious question now is whether the recent sell off in AUD is over or will it continue after a brief rebound?
We will look at three currency pairs below and give an outlook on a case-by-case basis. As usual, the period under consideration is short to medium-term.
AUDUSD -- 0.7092
If things develop positive for the Aussie the possible recovery can lift the currency pair to 0.7285/0.7310 (50 ema, 200 sma and mid Bollinger Band) without changing anything at the current bearish setup. First of all, bulls need a solid daily close above the 0.7100 resistance and next the 0.7150 treshold.
With tomorrow's FED meeting and an expected 50 basis point hike to 1.00%, we will see what today's RBA hike was worth. In this respect 50 bp might be not enough to fuel the USD rally any further because everything may be priced in. The RBA has at least surprised on the upside.
The downside risk lies below 0.6993/0.6967 and should be watched carefully. Of course, a big red candle can turn green again intraday, but if the support zone breaks I would get rid of longs for now.
EURAUD -- 1.4826
The upside is capped by the 50 ema (1.4933) and it looks like the rate hike of the RBA was urgently needed to keep the currency pair below that trend line. With respect to the extent of the recent downtrend from 1.6226 (hod 04feb22) —> 1.4321 (lod 05apr22) and the mean reversion theory a short-term rally to around 1.5275/1.5325 might be possible. But in the medium term I lack the imagination what could lift the Euro any further.
The ECB has not even started to leave its accomodative monetary policy (Banks are still paying 0.50% penalty interest on deposits!) and the point in time when the ECB will hike interest rates is not yet in sight. In addition, the geopolitical risk in the euro zone should also prevent a major recovery in the Euro for the time being. The currency pair EURUSD should be a good indicator.
AUDJPY -- 92.28
The fundamentals speak in favor of the Aussie against the Yen. On the one hand we see a RBA turning hawkish this morning. On the other hand we have seen a BoJ keeping its extreme accomodative stance last week.
Nevertheless I like the currency pair lower and I would look rather for shorts than for longs. Below the mid Bollinger band (93.00) and the recent highs (93.53 respectively 93.47) the pair should be offered for now and I expect a test of the 50 ema (90.163) quite soon. With a break of the 90.000 treshold a deeper correction could follow.
I keep an eye on the still stretched USDJPY currency pair to get a general idea of JPY crosses.
Good luck,
Sebbo