Macroeconomic overview
The Reserve Bank of Australia held rates steady, widely expected decision given policymakers recently signalled a steady outlook for much of the year ahead.
Governor Philip Lowe has repeatedly emphasised limits to monetary policy and last month said further cuts in interest rates would not be in the national interest as the danger of a debt-fuelled boom and bust was just too severe. With the governor signalling a high bar for a move lower, interbank futures imply a mere 6% chance of another cut by August. Today Lowe maintained his upbeat tone. “Exports have risen strongly and non-mining business investment has risen over the past year,” Lowe said. “Most measures of business and consumer confidence are at, or above, average.” He also reiterated the central bank’s forecasts for a gradual pick-up in underlying inflation, which is pinned at a record low of 1.5%.
A survey of business expectations by Dun & Bradstreet on Tuesday found business confidence was at an 18-month high while plans for capital investments for the second quarter of 2017 were at a two-year peak.
The Australian dollar inched higher after the rate decision, supported by the outlook for steady policy. But the reaction was short-lived.
Free Reports:
Technical analysis
The rejection of upward move today is an important bearish signal. What is more, the AUD/USD is below the negatively aligned 7-day exponential moving average, which highlights the bearish near-term outlook. But the scope for downward move is limited. The 0.7544 low on March 3 is still an important support level. Another solid support is situated at 0.7514 (38.2% fibo of December-February rise).
Trading strategy
We think that further fall in the AUD/USD is likely in the near term, but we stay sideways, as the scope of this move may be relatively small. We will be looking to use lower levels to open another long position.
CHF/JPY: We expect a further fall to 38.2% fibo of last-year rally
Macroeconomic overview
Bank of Japan board member Takako Masai said large swings in exchange rates can be a concern for Japan’s economy as it could hurt business sentiment.
Masai said risks to Japan’s economy have subsided compared with the second half of last year, as a tightening job market supported household confidence and consumption.
But the BOJ stands ready to expand stimulus if necessary, as consumption and wage growth still lack momentum, she said.
Masai added that there is no change to the BOJ’s commitment to continue with its large-scale government bond purchases even under a new policy framework targeting interest rates.
North Korea fired four ballistic missiles into the sea off Japan’s northwest coast on Monday, angering South Korea and Japan, days after it promised retaliation over U.S.-South Korea military drills it sees as preparation for war. U.S. President Donald Trump told Japanese Prime Minister Shinzo Abe that the United States was with Japan “100 percent” over phone talks they held to discuss North Korea’s latest missile launches.
USD/JPY investors shrugged off geopolitical tensions after the North Korean missile tests.
Japan’s fourth-quarter GDP will be published tomorrow. We expect a slight upward revision, which should support the JPY.
Technical analysis
After a rejection of upward CHF/JPY move on Friday, the JPY started to appreciate against the Swiss currency. The CHF/JPY broke below the 112.45 (38.2% fibo of February-March rise) today. A close below 112.18 will open the way to full retracement of February-March move. We think the downward move will be continued to 110.64 (38.2% fibo of September-January rally).
Trading strategy
We opened a short CHF/JPY position at 112.90 with the target at 110.60.
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By GrowthAces.com – Daily Forex Trading Strategies