RBA hikes rate 50bps: AUD/USD jumps, USD/JPY soars to 20-year peak

GBP Climbs as UK PM Survives; Stocks Rally, Bond Yields Ease

Summary: The Australian Dollar (AUD/USD) soared 0.60% to 0.7230 (0.7187) after the RBA surprised markets, delivering a 50-bps rate hike. Most participants expected a rise in the Cash Rate of between 0.25-0.40%. It was the biggest move in Australian interest rates in over 2 decades. Elsewhere in Asia, traders drove the US Dollar to fresh 20-year highs against the Japanese Yen (133.00) on the widening interest rate differentials between the two currencies. The USD/JPY pair eased in late New York to 132.60 with participants wary of any verbal intervention from Japanese officials. While BOJ Governor Haruhiko Kuroda has argued that a weak Yen would be beneficial to the Japanese economy, any large swings in the currency will prompt verbal intervention. A drop in the benchmark US 10-year treasury yield to 2.97% from 3.03% prevented the Greenback from moving higher. Other global bond rates were also lower but to a lesser degree. Elsewhere, the British Pound (GBP/USD) rallied 0.52% to 1.2590 (1.2525) after British Prime Minister Boris Johnson won a no-confidence vote, albeit by a tight margin. Earlier in the trading session, Sterling hit a low at 12430 in volatile trade. The Euro (EUR/USD) edged up against the broadly based weaker Greenback to 1.0707 after tumbling earlier to 1.0652 overnight lows. Against the Asian and Emerging Market Currencies, the US Dollar was mixed. Against the Singapore Dollar, the Greenback dipped to 1.3742 (1.3780) while USD/THB (Dollar-Thai Baht) was little changed at 34.40 from 34.45. Risk appetite was mixed, moving from risk-off to risk-on. Wall Street stocks rallied at the close. The DOW finished up 0.59% to 33,118 (32,858) while the S&P 500 climbed to 4,150 from 4,114 yesterday.

Economic data released yesterday saw Australia’s AIG Services Index ease to 49.2 from 57.8. The UK BRC Retail Sales Monitor (y/y) slid to -1.5% from a previous -1.7%, missing forecasts at 0.2%. Japan’s Average Cash Earnings (y/y) climbed to 1.7%, beating estimates at 1.5%. Japanese Household Spending (y/y) fell to -1.7% against median forecasts at -0.5%. Australia’s RBA lifted its Cash Rate to 0.85% from a previous 0.35%, higher than median estimates at 0.6%. Germany’s Factory Orders fell to -2.7% from an upward revised -4.2% (from -4.7%), missing forecasts at 0.4%. Eurozone Sentix Investor Confidence rose to -15.8 from a previous -22.6, bettering forecasts at -21.2. The UK Final Services PMI rose to 53.4 from a previous 51.8. Canada’s Trade Surplus eased to CAD 1.5 billion from a downward revised previous CAD 2.3 billion (CAD 2.5 billion) and lower than estimates of CAD 2.6 billion. The US Trade Deficit improved to -USD 87.1 billion from a previous -USD 107.7 billion and beating forecasts at -USD 89.6 billion. Canada’s IVEY PMI rose to 72.0 from 66.3, and better than median forecasts at 64.3.

• AUD/USD – The Aussie Battler had a choppy session overnight after the RBA surprised with a larger than forecast rate hike. Overnight low traded for the Aussie was at 0.7181 which was seen heading into the announcement. The AUD/USD pair traded to an overnight high at 0.7232 before easing in late New York to 0.7187.
• EUR/USD – The shared currency tumbled to an overnight low at 1.0652 on the broadly based stronger Greenback. Yesterday, the EUR/USD pair opened at 1.0692. As the US Dollar eased against its Rivals, the Euro rallied to an overnight high at 1.0714 before settling at 1.0707.
• USD/JPY – Against the yield sensitive Japanese Yen, the US Dollar rocketed to a fresh 20-year high at 133.00 before sliding to finish at 132.60. Yesterday the USD/JPY pair settled at 132.25. The Japanese currency was also weaker against the other major currencies. The AUD/JPY pair was up 1% to 95.95 (95.00 yesterday).
• GBP/USD – Sterling edged higher against the US Dollar, gaining 0.52% to 1.2590 from yesterday’s 1.2525. Overnight high traded was at 1.2599. The British currency had a choppy session with its overnight low recorded at 1.2430. UK political uncertainty kept a lid on the British currency.

On the Lookout: Today’s economic calendar is light and kicks off with Japan’s April Current Account (f/c +JPY 511 billion from a previous +JPY 2549.3 billion – ACY Finlogix). Japan also releases its Final GDP Growth Rate (q/q f/c -0.3% from 0.9%; y/y f/c -1% from 3.8% - ACY Finlogix). Australia follows next with its National Australia Bank May Business Confidence (no f/c previous was 10 – ACY Finlogix). Japan releases its May Economic Watchers Survey Outlook (f/c 50.4 from 50.3 – FX Street).

Switzerland starts off Europe with its May Unemployment Rate (m/m f/c 2.1% from 2.3% - ACY Finlogix). Germany follows with its April Industrial Production (m/m f/c 1% from previous -3.9% - ACY Finlogix). The UK releases its Halifax House Price Index for May (m/m no f/c, previous was 1.1%; y/y no f/c, previous was 10.8% - ACY Finlogix). Italy follows with its April Retail Sales (m/m no f/c, previous was -0.5%; y/y no f/c, previous was 5.6% - ACY). The Eurozone releases its Q3 GDP Estimate (q/q f/c 0.3% from 0.3%; y/y f/c 5.1% from 4.7% - ACY Finlogix). The US rounds up today’s economic data releases with its April Wholesale Inventories (m/m f/c 2.1% from 2.7% - ACY Finlogix).

Trading Perspective: An easing in US treasury bond yields saw the Dollar track lower against most of its Rivals, apart from the USD/JPY pair. The Dollar Index, a popular gauge of the Greenback’s value against a basket of 6 major currencies, eased to 102.30 from 102.40 yesterday. We can expect resistance to further USD strength as other countries lift interest rates, and the yield differentials narrow. Even the USD/JPY pair, which traded to fresh 20-year highs will face stiff resistance at 133.00 with Japanese officials vigilant. Japan released its quarterly GDP number just now which resulted in a better-than-expected -0.1% against median estimates -0.3% against a previous -0.2%.

Immediately following the release, USD/JPY rallied to 132.80 from 132.60 earlier. The one thing we can anticipate is further FX volatility.

• EUR/USD – The shared currency managed to edge higher against the US Dollar, finishing at 1.0707 in late New York. On the day, expect immediate resistance at 1.0715 followed by 1.0740 and 1.0770. On the downside, look for immediate support at 1.0685, 1.0655 and 1.0625. Expecting another roller coaster ride in the EUR/USD pair, likely range 1.0650-1.0730. Preference is to sell Euro rallies.
• AUD/USD – The Aussie Battler rallied to an overnight peak at 0.7246 before easing in late New York to 0.7230. Given the rate hike by the RBA, it’s a surprise that the AUD/USD pair is still hovering around current levels. Which suggests an inherently weak AUD/USD. Immediate support lies at 0.7200, 0.7170 and 0.7140. On the topside, immediate resistance can be found at 0.7260, 0.7290 and 0.7310. Look for consolidation in a likely range today of 0.7150-0.7250. Trade the range, which is nice and wide, the preference is to sell AUD rallies.
• USD/JPY – Trading in this currency pair is heating-up, and we can expect more verbal intervention from Japan Inc. Immediate resistance is found at 133.00 followed by 133.30 and 133.60. On the downside, immediate support lies at 132.30 followed by 132.00 and 131.70. Look for further choppy trade in this currency pair, likely range 132.20-133.20. Just trade the range, nice and wide for everyone.

(Source: Finlogix.com)

• GBP/USD – Despite UK political uncertainty caused by the growing pressure on Prime Minister Boris Johnson to step down, the British Pound stayed firm. Against broad-based US Dollar weakness, Sterling rallied to close at 1.2590 from 1.2525 yesterday. On the day, immediate resistance lies at 1.2600 followed by 1.2640 and 1.2670. Immediate support lies at 1.2560, 1.2520 and 1.2490. Look for further choppy trade in this currency pair, likely range 1.2470-1.2610. Prefer to sell rallies.

Have a good Wednesday ahead all, happy trading.