The Reserve Bank of Australia validated market expectations, keeping interest rates at 7.25%. AUDUSD fell 54 pips in the first 10 minutes following the release as Governor Glenn Stevens unequivocally told the markets that the RBA is planning to cut interest rates sooner rather than later. Falling crude helped the dollar score some gains overnight, but price action is likely to remain subdued in the European session until the Fed announces monetary policy in late New York hours.
Key Overnight Developments
• RBA Holds at 7.25%, Signals Rate Cuts Next
• Euro and Sterling Weaken Ahead of FOMC Announcement
Critical Levels
The Euro broke near-term support overnight, reaching as low as 1.5522. DailyFX Senior Currency Strategist Jamie Saettele reports the pair is poised lower below the 1.5283. Near-term support now stands at 1.5462 with resistance at 1.5699. Sterling followed its continental counterpart to fall below 1.96 in late Asian hours. Support stands at 1.9550, with near-term resistance at 1.9770.
Asian Session Highlights
The Reserve Bank of Australia validated market expectations, keeping interest rates at 7.25%. Much of the accompanying statement remained unchanged as Governor Glenn Stevens again highlighted “opposing forces”: tight credit, higher living costs (oil, food) and lower asset values act to subdue economic growth while the China-driven mining boom pulls growth higher. Still, Stevens remained adamant that inflation would moderate to below 3% in 2010 as previously forecast.
The real message was saved for the very last: Stevens concluded by saying that “with demand slowing, the Board’s view is that scope to move towards a less restrictive stance of monetary policy in the period ahead is increasing.” With this statement, Stevens unequivocally told the markets that the RBA is planning to cut interest rates sooner rather than later. AUDUSD reacted strongly, dropping 54 pips in the first 10 minutes following the release.
New Zealand’s Commodity Price Index improved to print at 1.8% in July, the highest in three months. Meat prices led the increase, rising a whopping 4.5%. NZDUSD ignored the release entirely as the improvement in trading terms that it suggests is woefully inadequate to slow the march toward recession for the smaller antipode.
Euro Session: What to Expect
Economic data is unlikely to yield much movement in the European session. Recent price action has taken its cues from broad dollar sentiment and trading will probably remain quiet until the Fed announces monetary policy in late New York hours.
With that in mind, UK Industrial Production is expected to show slight improvement, contracting -1.2% in the year to June versus -1.6% in the preceding month. The durable goods component of the metric has cautiously improved as a weaker Pound encourages overseas sales of UK-made cars and aircraft.
Euro-Zone Retail Sales are seen dipping into negative territory in June, showing an annualized decline of -1.3%. Retail activity rebounded unexpectedly in May, reversing from a record low in April. Last week, Germany’s retail sales declined nearly five times more than forecast in the year to June (-3.9% vs. -0.8% expected). French retail activity also underperformed in the same period, though not by as wide of a margin (1% versus 1.4% expected). Downside results for the EZ’s top two economies point to contraction in the overall metric, suggesting May’s rosy outcome was a one-off affair.
To contact Ilya regarding this or other articles he has authored, please email him at ispivak@dailyfx.com.
