AUD/USD lower as the RBA enters perpetual-hold mode

Notes from the RBA’s March statement

• The RBA held interest rates at 4.35%
• Inflation continues to moderate but remains high
• Services inflation remains elevated, and is moderating at a more gradual pace
• Conditions in the labour market continue to ease gradually
• Wages picked up in December but appear to have peaked
• CPI weighing on real wage, household consumption is weak
• The economic outlook remains uncertain
• Domestically, uncertainties remain regarding policy lags and how firms’ pricing decisions and wages will respond to the slower growth while the labour market remains tight
• While recent data indicate that inflation is easing, it remains high
• It will be some time yet before inflation is sustainably in the target range (no case for an easing bias)
• The Board is not ruling anything in or out (rates could move in either direction)

The RBA finally ditched their slightly hawkish bias that nobody thought they needed. And that puts them into perpetual-hold move until we either see the wheels fall off of the Australian or global economy, or dare I say, rising commodity prices spook central banks into reverting to a hawkish mode.

Ultimately, the RBA retain a lower cash rate then the majority of their peers. And whilst they acknowledge that the economy is slowing, they will not see a case to cut in all the time they describe inflation as “too high”. But if or when they do eventually remove any reference to CPI being “too high”, it is game on for a cut. I just do not see that happening in the foreseeably future.

AUD/USD technical analysis:

The Australian dollar currently traders lower for a fourth day, and has broken convincingly beneath its 200-day average. The day’s current low has almost perfectly respected the lower 1-day implied volatility band outlined this morning. Yet it seems like AUD/USD wants to continue moving lower. And with the chance of a less-dovish (or more-hawkish) than expected FOMC meeting, I have 65c on the cards for a potential downside target.

And as we saw a 3-wave move between the Fed low to March high, we should also prepare for the potential that AUD/USD may break to fresh cycle lows for the year.

AUD/NZD technical analysis:

The cross has enjoyed a very strong rally form the February low, although it now appears to have entered a corrective mode. A bearish inside day formed on Monday and met resistance at the 200-day average, and at current prices today’s candle is on track for a bearish outside day / shooting star.

Bears could enter short with a stop above this week’s high and target the bullish engulfing low, or for a large move the 1.07 handle near the 38.2% Fibonacci level.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge