AUD/USD, ASX 200 analysis: AUD perks up ahead of RBA cash rate decision

Market summary

• The ISM services report fanned concerns of a recession with a mild expansion of 50.3 (below 50 denotes industry contraction)
  • Prices paid (a gauge of industry inflation) expanded but at its slowest pace in three years
  • New orders also expanded at a slower pace of 52.9 (and beneath its 1 and 3-month averages)

   

• Apple shares closed lower after unveiling a US $3500 VR headset, printing a potential key reversal on high volume after briefly touching a record high
• ECB President Christine Lagarde acknowledged “signs of moderation” for the eurozone’s core CPI but conceded it was too soon to call peak inflation
• Oil retracted lower to fully close the weekend gap, which originally saw WTI rise $3 on news that Saudi Arabia were to cut oil production by 10% from July
• AUD/USD pulled back to the lower support zone before ahead of today’s RBA meeting before rallying on a weaker US dollar, where today’s decision remains ‘finely balanced’ as to whether the RBA could pause or hike
• China’s services PMI expanded faster than expected according to the private survey by Caixin, helping to lift sentiment in the Asian session
• GBP weakest, CHF and JPY strongest
• Read our weekly COT report for market positioning of forex, commodities and stock market indices traders

Events in focus (AEDT):

• 09:30 – Japan household spending, overtime pay
• 11:30 – Australia balance of payments, household spending, building approvals (updated)
• 14:30 – RBA cash rate decision

ASX 200 at a glance:

• Yesterday was the most bullish day for the ASX 200 in two months
• It rallied for a third day and closed above 7200
• Its upside could be limited today if the RBA deliver a hawkish pause (and potentially trade lower if they hike)
• SPI futures point to a weak open of ~0.6%

AUD/USD 1-hour chart:

However, if prices pull back then 0.6600 may provide support heading into the meeting. It is then down to whether they hike or deliver a hawkish pause as to how AUD reacts. The probability of a dovish tine seems extremely low given the higher inflation rate and minimum wage increase delivered last week.

Asia Data Calendar (AEDT):

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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