AUD/USD firms post RBA, ASX 200 eyes on China for sentiment

Market Summary:

The RBA held their cash rate at 4.35% for a third meeting but decided not to remove their slight tightening bias from the statement, warning that “a further increase in interest rates cannot be ruled out”. And whilst the RBA acknowledged lower inflation, it still remains “too high” for their liking.

However, the RBA lowered their CPI forecast to return to within the 2-3% range by December 2025 (and trimmed mean CPI by June 2025). The cash rate is expected to be lowered to 3.2% by December 2025, or 3.9% by December 2024 which implies less than two rate cuts this year.

• AUD/USD was the strongest FX major on Tuesday as traders digested the RBA meeting and tracked APAC equities higher during a risk-on session for Asia
• China’s equities rebounded for a second day, the Hang Seng enjoyed its best day since July following a Bloomberg report that top regulators are to discuss market conditions with Xi Jinping
• Crude oil rose around 1% in line with my bullish bias as its countertrend move seemingly gets underway. $74 and the weekly/monthly pivot points around $74.50 – $74.80 are now in focus for bulls, where I’d then reassess it potential to extend gains or mark a swing high
• The US dollar retraced from its 11-week high after posting two-strong days if gains
• Fed’s Mester said she still leans towards three rate cuts this year (which is consistent with the median forecast for cuts in 2024) but didn’t want to put a timing on them and wants to see more data
• BOC governor said that the central bank is not working to a time table regarding rate cuts., and the path back to 2% inflation is likely to be slow. With central banks seemingly on the same page in not announcing any cuts soon, it may leave some disappointment for the market participants who expect four BOC rate cuts this year
• Gold formed a bullish inside day after finding support above $2020, which seems to be trading in the choppy range due to bears lacking appetite to drive it below $2000 whilst futures traders trim long exposure
• Wall Street was mixed with the S&P 500 and Dow Jones forming small bullish inside days just beneath their record high and the Nasdaq forming small bearish outside day just below its ATH

Events in focus (AEDT):

• 09:00 – Australian
• 10:50 – Japan’s foreign reserves
• 11:30 – RBA chart pack
• 14:35 – Japan’s 30-year JGB auction
• 16:00 – Leading and coincident indices
• 18:00 – German industrial production
• 19:00 – China FX reserves
• 21:00 – BOE Breeden speaks
• 23:15 – BOE deputy governor speaks
• 03:30 – Fed Collings speaks

ASX 200 at a glance:

• The ASX 200 closed lower for a second day after the RBA’s meeting was less dovish than hoped
• 10 of its 11 sectors declined, led by info tech and materials
• Yet SPI 200 futures recouped all of the prior day’s losses which points to a strong open for the ASX 200 cash index today
• Take note that RSI 2 and 14 are oversold for SPI futures, which met resistance around Monday’s overnight high – hence the bias for a pullback today
• If China’s markets can extend their rally today, it could bode well for the ASX and AUD/USD

AUD/USD technical analysis (daily chart):

I outlined a bullish bias heading into the RBA meeting, although as I was expecting it to be slightly more dovish this now needs revising. A bullish engulfing candle formed on AUD/USD Tuesday after RSI (2) tapped oversold on Monday. Prices have paused around the pivotal S/R around 0.6525, and there is a risk it could extend yesterday’s rally if sentiment for APAC markets remains buoyant today. Take note that China’s equities markets were quite excited about the prospects of Xi Jinping meeting with regulators, so AUD/USD may get another tailwind from its developments. Also note that a bullish RSI divergence has formed which signals a potential pullback.

However, the bear-flag breakout which projects a target around 64c remains in play. Form here, traders can monitor prices around the current S/R level to see if prices break higher or form a swing high. Should prices continue higher, I’d prefer to see evidence of a swing higher below 0.6560 before reconsidering a short in line with the bear flag pattern.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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