Aussie on fire as RBA chills

The Australian dollar is trading at 1-month highs after Reserve Bank Governor, Glenn Stevens’s poured cold water on the chance of a near-term rate cut. He was unusually ‘chilled’ in any case when responding to a question about prospects of interest rates being cut further, saying “we’ve got Christmas. We should just chill out, come back and see what the data says.” In a clear sign that that we won’t see another rate cut this year, Stevens further said he agreed with the argument that rates should remain at 2% when the bank meets in December.

Perhaps it is way of trying to subtly express some confidence. Over the years Stevens has expressed the importance on focusing on the positives, with negative views often leading to negative outcomes in ‘self-fulfilling prophecy’ type fashion.  Whatever the case, a few short sentences was enough to inject some confidence in the currency, with the Australian dollar solidly bid to highs of 72.65 US cents.

Meanwhile, another of the Aussie dollars key drivers, Iron Ore, was dropping to 6-year lows. Iron Ore is seen as a barometer of demand from Australia’s largest trading partner, China whose economic strength or weakness a key determinate of the Australian economy – therefore the Australian dollar. Check out the Australian Financial Review coverage of the latest iron ore rout.

Looking across AUD pairs, a head and shoulders pattern discussed on the GBPAUD discussed earlier this month was completed overnight with price action falling into the 2.07 handle. GO Markets technical analysts, Adam Taylor noted on the 20th of November that “a head and shoulders reversal appears to be developing on the GBPAUD which would lend itself to a medium term target of around 2.07.”

Now that we’ve seen the head and shoulders formation complete, he sees it reasonable to see a period of consolidation.

GBP/AUD – head and shoulders formation complete.

From one commodity unit to another, and the Canadian dollar found resistance against the greenback overnight, stalling around the previous high of 1.3450. The longer-term bullish support line is still active, this was last tested near the beginning of the month. Should price breakout of the 1.3450 area, we may see some considerable moves to the upside creating the next leg up. Alternatively, a possible re-test of the support line would be witnessed around the 1.3150 mark.

Daily USDCAD chart – Bullish support still in play