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FX Headlines: Aussie Loses Footing After RBA Decision, Surprise Chinese Rate Hike
Written by article default Wednesday, 06 April 2011 11:01
The Aussie weakened slightly in the overnight following a slew of disappointing data from the antipodean nation, as well as surprising data from major trading partner, China. The trade balance, forecasted to show a A$1.2 billion surplus, was in fact a deficit of A$205 million in February, marking the first time that imports were greater than exports in 11-months. Treasurer Wayne Swan suggested that recent natural disasters, specifically flooding in Queensland, have reduced output of commodities such as coal, leading to an approximate A$9 billion shortfall in exports this year. The headline event for the Australian Dollar, however, was the Reserve Bank of Australia’s rate decision, which although unchanged, hinted that no further rate hikes could be expected. On the other hand, Finance Minister Bill English, following the meeting, stated that a “bounce back” in business confidence would be likely, offsetting the necessity for further rate cuts. In what was another surprise move, the People’s Bank of China raised rates once again, in order to restrain inflation in the world’s fastest growing major economy. The rate hike decision, which comes ahead of March’s inflation data, suggests that the PBoC is preempting figures that are expected to show continue price pressures to build. The wake of the decision, as historically has occurred, left the Australian Dollar weaker. The Aussie fell from an all-time high of 1.0416 against the Dollar to as low as 1.0287 during the middle of the European session.
Fundamental Headlines
• U.S. Service Industry Likely Grew Close to Fastest Since 2005 – Bloomberg
• Geithner Sees “Severe Hardships” If Debt Limit Isn’t Raised – Bloomberg
• China Raises Rates for Fourth Time Since October – CNBC
• U.K. and Saudi Arabia Call for Calm in Oil Markets – Financial Times
• Libyan Rebels Set for First Crude Exports – Financial Times
AUDUSD: The AUD/USD pair, after gaining for 11-days consecutively continued its correction in the overnight session, and now has dropped over 100-pips during the last 24-hours. The correction remains minimal, however, considering the 700-pip push higher by the Aussie against the Greenback since March 17. Two key data pieces were released in the overnight session that helped soften the AUD/USD pair. First, trade balance data severely disappointed investors, with a deficit emerging for the first time since March 2010; estimates have shown that recent disaster could cost the economy as much as A$9 billion. Secondly, the RBA’s decision to hold rates at 4.75 percent, and accordingly suggest that a stronger Aussie has helped control costs, has softened rate hike expectations going forward, alleviating some of the upside momentum built into the pair over the past two weeks.
Taking a look at price action, a key level at 1.0200 appears to be a level of support; once a former significant resistance, the same level serves as a level of support. The pair is coming off of all-time highs, so relatively speaking, it is in unchartered waters. However, on the December 1 to April 4 move, the 23.6 Fibo at 1.0213 suggests near-term support ahead of the psychologically significant 1.0200 level. Should this level be broken, a test of the 20-SMA and 50-SMA, at 1.0142 and 1.0104, respectively, could follow; a drop below the 1.0200 level could signal losses beyond these moving averages, however.
Written by Christopher Vecchio, DailyFX Research.
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