Relief rally in AUD after Stevens' speech

There was relief rally in the Australian dollar after RBA Governor Stevens failed to comment about the commodity currency or monetary policy during his speech in Sydney. We suggested this may happen in this morning’s report, but we still think the aussie is looking top heavy, especially if we see a weaker than expected set of inflation figures out of Australia tomorrow. In the meantime, we continue to think that AUDUSD may trade in a broad range between 0.9325 and 0.9410, although this may depend on tonight’s US CPI and housing data.

The governor did highlight the limits of monetary policy as a tool to foster growth without the help of governments and reforms on the supply side. He added that “if some increased risk in the financial sector is part of getting more genuine entrepreneurs in the economy to take the sorts of risk that are part and parcel of restoring the dynamic of growth, (then) that is probably a trade-off worth making.” However, he added that having the former without the benefit of the later would be disappointing as that is where real growth and jobs are created.

Stevens looks for an increase in confidence

Following his speech Stevens commented that he hopes the RBA will never be in a position to need unconventional monetary policy, adding that low interest rates are doing what they normally do. He also touched on what we believe is one of the biggest warning sings in the economy – low consumer confidence. A lack of activity at the ground level is a sign of lacklustre growth. However, we do need to give consumer more time to get over the fiscal consolidation outlined in the budget.

AUDJPY

The relief rally in AUDJPY shot the pair towards a key resistance around 95.30, but the build-up of orders that fuelled the rally quickly ran out. RSI is also testing a critical and if its breaks through it could lead price higher (possible head and shoulders pattern in price). On the downside we are watching a support zone around 94.90.

Source: FOREX.com