Aussie gains post-RBA as Lira, Rand and Real remain under pressure

Forex News and Events

Following the PBoC rate cut and RBA’s surprise status quo, the Bank of Canada, Brazil (Wed), England and the European Central Bank (Thursday) decisions are on the wire.

The RBA unexpectedly refrained from lowering its cash rate target to 3.0%, while citing that further policy easing may be appropriate in months ahead. The RBA decision is seen as strategically clever given that the expectations for lower rates push investors to postpone their activity and pay lower wages. Indeed, since the last RBA cut, the situation in Australian jobs market has rather deteriorated with unemployment rate reaching 6.4% y/y combined to wages growing at record low pace. The strong growth in housing prices has been, according to Governor Stevens, an important weight in decision to leave rates unchanged, while the below-the-trend growth and sliding commodity prices will likely lead to fresh rate cut over months ahead. AUD/USD rose to 0.7842 (still below yesterday high 0.7845) with slight positive bias in trend and momentum indicators. 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.

Quick recap on TRY, ZAR and BRL

Turkey’s headline CPI accelerated faster than expected in February, from 7.24% to 7.55% y/y, while the core CPI eased unexpectedly to 7.73% y/y from 8.63% a month ago. The mixed CPI read increases market anxiety, fueling expectations that the improvement in core CPI will most probably revive President Erdogan and government’s call for lower interest rates to curb the economic slowdown. Although the inflation figures may be perceived as favorable for lower interest rates, Turkey’s country risk and the potential rise in risk premium before June general elections should continue thickening the market disapproval regarding further rate action. The dovish skewness in CBT’s monetary policy is not supportive for a core inflation below 7.00/7.50% in the first half of the year.

On Wednesday, the Brazil Central Bank is expected to raise the Selic rate by additional 50 basis points to 12.75% to cool-off, both, the inflationary pressures and the selling interest on the BRL. The expectations of tighter policy should keep the BRL-shorts contained through the first half of the week and even push USD/BRL below the two-week ascending baseline 2.8355. In the second part of the week however, the direction will mostly depend on USD leg walking into Friday’s NFPs. Given the data-dependent stance of the Fed, we expect a strong read to challenge 2.90/92 area effortlessly.

Friday’s US jobs data will also be the focus across the EM, among them the selling pressures in ZAR comes back in focus. Despite last week’s good GDP read in 4Q (4.1% q/q vs. 3.8% exp. and the previous read revised higher to 2.1% from 1.4%) and faster private credit expansion in January, the South African budget printed 29 billion deficit, alongside with 24.2 billion deficit on trade balance. Lower rand, lower commodity prices should continue weighing on trade terms in the first quarter at least and endogenously push ZAR lower verse the strengthening USD. The 12-threshold is in focus in 1-3 month horizon in the continuation of ascending long-term triangle formation.

AUD/USD gains post-RBA