Fed Unable to Help the RBA

NFP Misses: Back on deck and refreshed after the NSW (Australian) Labour Day public holiday Monday. Summer has arrived early in Sydney, with the weekend an absolute scorcher! It was definitely good to refresh the batteries and take a break away from the charts for the couple of days. Have to keep that mind sharp for when you need it the most!

First quickly moving through Friday’s BIG NFP miss:

“USD Average Hourly Earnings m/m (0.0% v 0.2% expected)”

“USD Non-Farm Employment Change (142K v 201K expected)”

“USD Unemployment Rate (5.1% v 5.1% expected)”

An ugly set of numbers no matter which way you look at them and probably the last nail into the coffin of a 2015 rate hike. As the futures market all but prices out a hike this year, that September liftoff expectation we were speaking about not that long ago is all but a distant memory now!

USDX 15 Minute:

The headlines numbers obviously smashed the US Dollar through the USDX basket, but by Tuesday Asian session, price has all but rebounded to where it was pre-release!

As we spoke about in Friday’s NFP Scenarios, the bigger risk was always for a miss to the upside than the down and the relatively muted, directional reaction to the downside in the USDX and across the majors is testament to just how much was already priced in.

If you took a hit on any shorts playing for the beat of expectations, you can’t feel bad because you put yourself into a position to cash in with minimal risk. That’s just trading.

RBA Tuesday:
During the Asian session, today is all about the Reserve Bank of Australia who have their monthly monetary monetary policy meeting in Sydney. The RBA is widely expected to leave interest rates unchanged at 2% both at this meeting and then into at least the early parts of 2016.

The RBA have managed to keep their powder dry through the recent months of stock market turmoil and Chinese demand woes, helped by the lower Aussie Dollar providing the loosening fiscal impacts required. With last night’s big NFP miss taking a 2015 hike off the table in the US, this could leave the door open for at least a change in guidance from the RBA.

Bloomberg is reporting that there is only a 27% chance of a 0.25% cut priced into the market as we head into Tuesday, but there are a number of economists calling for a cut sooner rather than later on local labour market concerns, now that the Fed backstop has been taken away. Here’s Josh Williamson from Citi:

“If they wait until February, it will be too late and they’d need to cut again immediately after the first one. So we’re hoping, and expect them to go in November.”

AUD/USD Weekly:

I know it’s sometimes frustrating for day traders to see weekly charts featured in these sorts of posts, but with price right inside a confluence zone of weekly support, any levels posted from a lower time frame point of view would be doing you a disservice.

Again the bigger risk is anything less than dovish coming from Stevens and the RBA. Something that I just can’t see happening after what we’ve seen heading into this week.

On the Calendar Tuesday:
CNY Bank Holiday
AUD Trade Balance
AUD Cash Rate
AUD RBA Rate Statement

CAD Trade Balance
USD Trade Balance
EUR ECB President Draghi Speaks

Chart of the Day:
Heading into this afternoon’s RBA interest rate decision, we take a look at AUD/NZD in today’s chart of the day.

AUD/NZD Daily:

While although still in shorter term range, AUD/NZD is stepping up between major support/resistance levels nicely. A great example of how tight your stops can be placed if you get conformation of a bounce off a major support/resistance level.

Price has now come back to test one of these support/resistance levels that has been an area of interest in the past and gives a nice area to manage your risk around.