Aussie jumps on RBA surprise rate hike, greenback edges up

Euro, Sterling, Yen Slip, CAD Climbs Ahead of BOC Meeting.

Summary

The Aussie Dollar (AUD/USD) jumped to 3-week highs at 0.6670 after the RBA surprised markets with a 25-basis point rate hike. Australia’s Cash Rate climbed to 4.1%, an 11-year high.

The rate increase was the second in a row from the Australian Central Bank. RBA Governor Philip Lowe said that high inflation remained persistent while urging an uptick in productivity.

Elsewhere the US Dollar edged higher against its Rivals. The Dollar Index (USD/DXY), a popular measure of the Greenback’s value against a basket of 6 majors, rose to 104.15 (103.50).

The Euro (EUR/USD) fell to 1.0692 from 1.0710 while Sterling (GBP/USD) eased to 1.2422 from 1.2435. Against the Japanese Yen, the Dollar (USD/JPY) rallied to 139.67 (139.25) after trading to 139.99.

Ahead of tonight’s Bank of Canada rate decision, the USD/CAD pair slipped to 1.3402 from 1.3415. The Bank of Canada is not expected to raise its Overnight Rate, currently at 4.50%.

The Dollar finished mixed against most Asian and Emerging Market currencies. USD/SGD (Dollar-Singapore Dollar) was flat at 1.3480. The USD/THB (Dollar-Thai Baht) pair climbed to 34.80 from 34.70. Against the Offshore Chinese Yuan (USD/CNH), the Greenback was little changed at 7.1300.

Global stock markets steadied. In late New York trade, the DOW settled at 33,568 (33,575) while the S&P 500 was last at 4,288 against 4,275 yesterday.

Global bond yields were mixed. The US 10-year treasury bond rate was last at 3.66% (3.69%). Australia’s 10-year treasury bond yield soared to 3.80% (3.64%) following the RBA’s rate hike.

Economic data released yesterday saw China’s Caixin Services PMI rise to 57.1 from 56.4, beating estimates at 55.2. Japan’s Annual Household Spending slid to -4.4% from a previous -1.9%.

Germany’s Trade Surplus climbed to +EUR 18.4 billion from a previous downward revised +EUR 14.9 billion (from +EUR 16.7 billion). The Eurozone Sentix Investor Confidence Index slipped to -17 from the previous -13.1 and lower than estimates at -15.2.

US ISM Services PMI fell to 50.3 from 51.9. Canada’s IVEY PMI fell to 53.5 from 56.8, and lower than expectations at 57.2. Canada’s Building Permits slumped -18.8% from a previous +12.3%.

• AUD/USD – The Aussie Dollar rocketed to an overnight and three-week high at 0.6685 after the RBA raised interest rates to 4.1%. At the close of trade in New York, the AUD/USD pair settled at 0.6671. The Aussie Battler also gained against other currencies.

• USD/JPY – In choppy trade, the Greenback soared to an overnight high at 139.99 before easing to settle at 139.67. The overnight low recorded was 139.09. The 140.00 resistance level held as markets speculate on the Bank of Japan’s response.

• EUR/USD – The shared currency eased against the Greenback to 1.0692 at the close of trade in New York. Yesterday, the EUR/USD pair opened at 1.0710. The EUR/USD pair traded to an overnight high at 1.0733 while the overnight low recorded was at 1.0667.

• GBP/USD – Sterling finished modestly lower at 1.2423 (1.2433) after trading to an overnight peak at 1.2459. Lower than expected UK BRC Retail Sales, at 3.7% against forecasts at 5.2%, and a previous 5.2% weighed on the British Pound. Overnight low traded was 1.2392.

On the lookout

Today’s economic calendar is a busy one and began with New Zealand’s GDT Milk Price Index, which was unchanged at -0.9% from a previous -0.9%. The Kiwi was little changed, at 0.6077 following the release. Australia releases its Q1 2023 GDP which is expected to ease to 0.3% from 0.5% (ACY Finlogix). China follows with its May Balance of Trade (f/c Surplus of +USD 92 billion from a previous +USD 90.2 billion – ACY Finlogix). China’s May Exports are forecast to fall to -0.4% from 8.5% while Imports are expected at -8% in May from April’s -7.9%. Switzerland starts off Europe with its May Unemployment Rate (f/c 1.9% from 2% - ACY Finlogix). Germany releases its April Industrial Production (f/c 0.6% from -3.4% - ACY Finlogix). Watch this set of data because of the large gap between what is expected compared to the previous number. The UK releases its May Halifax House Price Index (m/m f/c 0% from -0.3%; y/y f/c -0.95% from -0.1% - ACY Finlogix). Italy rounds up European reports with its April Retail Sales (m/m f/c -0.4% from 0.0% - ACY Finlogix). Canada releases its April Trade Balance (f/c +CAD 0.90 billion from a previous +CAD 0.97 billion). The US rounds up today’s data releases with its April Trade Balance (f/c -USD75.2 billion from -USD 64.2 billion – ACY Finlogix). The Bank of Canada’s monetary policy meeting and announcement round up today’s calendar.

Trading perspective

Another heavy economic data calendar will keep trading choppy. The Dollar continued to rally versus its Rivals, bar the Aussie, Kiwi and Canadian Loonie. The Australian Dollar held on to its gains with eyes on the release of Australia’s GDP as well as further rhetoric from Philip Lowe. The RBA Governor is scheduled to speak this morning at the Morgan Stanley Australia Summit. The Aussie Dollar will keep its overall bid with more volatility expected in this currency pair. Traders will also monitor developments in the USD/JPY pair, which traded to an overnight high just under the 140.00 resistance level. US bond yields eased overnight while those of its Rivals rallied. This should keep the Greenback’s topside limited.

• AUD/USD – The Aussie Dollar jumped to 0.6670 against yesterday’s 0.6640. For today look for immediate resistance at 0.6685 (overnight high). The next resistance level lies at 0.6705. On the downside, immediate support is found at 0.6635, 0.6605 and 0.6585. Look for another volatile session on the Aussie today, likely between 0.6610-0.6680. On the day the preference is to buy dips to 0.6580-0.6600 today.

(Source: Finlogix.com)

• USD/JPY – Against the Japanese Yen, the US Dollar edged higher despite an easing in the US 10-year bond yield to 3.66% from 3.69%. Look for immediate resistance at 140.00 followed by 140.30 to cap any rallies. Immediate support can be found at 139.70, 139.40 and 139.10 (overnight low traded was 139.09). Look for further choppy trade, likely between 139.10-140.10. Trade the range and watch for more rhetoric from Japanese officials.

• EUR/USD – The Euro eased against the US Dollar to 1.0692 from 1.0710 yesterday. On the day, look for immediate support at 1.0660 (overnight low traded was 1.0967). The next support level is found at 1.0630. Immediate resistance can be found at 1.0740 (overnight high traded was 1.0733) and 1.0770. Immediate support lies at 1.0665 followed by 1.0635. Look for the Euro to trade in a likely range today of 1.0650-1.0730. Prefer to sell rallies.

• GBP/USD – Sterling eased marginally against the mostly stronger US Dollar, closing at 1.2422 (1.2435). Look for immediate support in the British currency at 1.2390 (overnight low traded was 1.2392. The next support lies at 1.2360 and 1.2330. Immediate resistance lies at 1.2460 (overnight high traded was 1.2458). The next resistance level is found at 1.2490. Expect Sterling to trade a likely range today of 1.2370-1.2470. Trade the range.

Have a good Wednesday and trading day ahead all.

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