AUD gains amid surprise RBA inaction

Market Brief

Unexpectedly, the RBA kept its cash rate target unchanged at 2.25% citing that policy easing may still be appropriate in the future and further AUD depreciation should help balancing the growth (seen below trend). The Australian current account balance narrowed faster-than-expected to AUD -9.6bn from AUD -12.1bn (revised) in 4Q. The RBA is seemingly in effort to keep margin for future maneuver, closely monitoring the inflation, housing and commodity prices. The surprise inaction from the RBA is certainly a strategic “move”, aiming to inject the uncertainty needed in the Australian money markets so that business owners are not pushed to wait for lower rates to boost their activity. AUD/USD hiked to 0.7842 post-announcement (a stone’s throw below yesterday high 0.7845). While the short term trend indicators continue pointing for an upside bias, offers are presumed strong at 0.7955/0.8000 (50-dma/Oct’14 – Feb’15 downtrend channel top & optionality). We keep our mid-term target unchanged at 75 cents verse USD.

Japan monetary base expanded to 278.9 trillion yen end of February. USD/JPY and JPY crosses were mixed. USD/JPY remained limited by offers at 120+ as PM advisor Honda said the BoJ should not overheat the economy. The rise in AUD/JPY post-RBA helped keeping the USD/JPY supported above 119.57. The key short-term resistance is seen solid at 120.47/48 (February 11/12 double top).

In Switzerland, the GDP growth remained stable in 4Q at 0.6% q/q and 1.9% y/y despite expectations for an economic slowdown. The fourth quarter has certainly been the beginning of a challenging period for the Swiss economy, with the first negative rates introduced in December (effective in Jan 22nd). The most expected economic results are those of Q1, amid the SNB decided to remove the EUR/CHF floor. Therefore, the market reaction remains skeptical to 4Q figures given that the damages caused by the free-float EUR/CHF will be visible only from Q1 data. EUR/CHF sees choppy trading between 1.05/1.10 area on business owners and households’ cautious stance vis-à-vis the fragile appreciation in EUR, especially with the persisting uncertainties regarding the Greek situation.

EUR/USD consolidates weakness before Thursday’s ECB meeting. The bias remains on the downside as traders look to sell the rebounds. The persistent risks on Greek solvability weighs on the EUR-complex while the Greek FinMin Varoufakis said to be confident that Greece will service its March obligations. EUR/USD offers remain thick at 1.1340/1.1445 (21-dma / Fibonacci 23.6% on Dec’14-Jan’15 sell-off).

USD/CAD trades ranged before the GDP read due later today. The fourth quarter GDP is expected to have fallen from 2.8% to 2.0% annualized, while some improvement must have been occurred through December according to optimistic market expectations. USD/CAD hovers around the 21-dma (1.2504) mostly in short-term bearish consolidation zone amid the pair hit 1.2799 on Jan 30th. Key support to consolidation is placed at 1.2395 (ascending baseline building since Jan 22nd) as oil prices have hard time to pick up in the short-run. The WTI tests $50.20/50 (21 & 50 dma).

Today’s economic calendar consists of Swiss 4Q GDP q/Q & y/y, German January Retail Sales m/m & y/y, Spanish February Unemployment, UK’s February Construction PMI, Euro-zone January PPI m/m & y/y, Canadian 4Q quarterly GDP Annualized and December GDP m/m & y/y, Canadian January Industrial and Raw Materials Price Index m/m and ISM New York in February.