Aussie Steady Despite RBA Hike and Strong Retail Sales
Australian dollar shrugs off RBA interest rate hike and a better than expected retail sales report and remains in range. RBA restarts the tightening cycle today by raising key interest rate by 25bps to 4.00%. In the accompanying statement, Governor Stevens said that today's decision is a "further step" in the process of bringing interest rate "closer to average". The bank expects growth to be "close to trend" and inflation "close to target" over the coming year. Retail sales released today show stronger than expected growth by 1.2% mom in January. In spite of the strong recovery from 0.8802, AUD/USD is still limited below last week's high of 0.9070 and today's releases did nothing to trigger buying through this resistance yet. The fate of AUD/USD would likely depend on whether dollar index would break out from which side of the 80.09/81.34 range.
BoC will be the next central to announce rate decision today. Both market expectations and economic development evolved recently point to an unchanged monetary policy stance at BoC's March meeting. The central bank will most likely announce to keep its policy rate at 0.25% and keep the statement that 'conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target'. Currently, the market anticipates the first rate hike will be in 3Q10 the earliest. More in Unchanged Monetary Policy Stance Expected at BoC's Meeting.
Commodity currencies are generally resilient recently. As discussed before, we'd slightly prefer Canadian dollar over Australian dollar in near term and the view remains unchanged. The choppy recovery of EUR/CAD from 0.9928 is clearly corrective in nature. The fall from 0.9912 is expected to resume sooner or later to 100% projection of 0.9912 to 0.9197 from 0.9629 at 0.8914, which is close to 38.2% retracement of 0.7164 to 0.9912 at 0.8862.
Elsewhere, the oversold sterling staged a recovery overnight but remains generally weak. We'd continue to expect more downside going forward. Dollar failed to take out recent high against dollar and Swiss while dollar index was also limited below 81.34 resistance and pulled back sharply. We'd still neutral for the moment and wait for an eventual downside break out in EUR/USD which should also trigger a break out in dollar index through 81.34 resistance towards 82.63. In any case, dollar index is expected to be supported by 79.56 cluster support holds (38.2% retracement of 76.60 to 81.34 at 79.52).
On the data front, Japan unemployment rate dropped from 5.2% to 4.9% in January. Household spending rose less than expected by 1.7% yoy in January. Swiss GDP is expected to rise 0.4% qoq, drop -0.5% yoy in Q4. UK construction PMI is expected to rise slightly to 48.7 in February. Eurozone CPI is expected to slow to 0.9% yoy in February. PPI is expected to rise 0.6% mom, drop -1.1% yoy in January.
Australian dollar shrugs off RBA interest rate hike and a better than expected retail sales report and remains in range. RBA restarts the tightening cycle today by raising key interest rate by 25bps to 4.00%. In the accompanying statement, Governor Stevens said that today's decision is a "further step" in the process of bringing interest rate "closer to average". The bank expects growth to be "close to trend" and inflation "close to target" over the coming year. Retail sales released today show stronger than expected growth by 1.2% mom in January. In spite of the strong recovery from 0.8802, AUD/USD is still limited below last week's high of 0.9070 and today's releases did nothing to trigger buying through this resistance yet. The fate of AUD/USD would likely depend on whether dollar index would break out from which side of the 80.09/81.34 range.
BoC will be the next central to announce rate decision today. Both market expectations and economic development evolved recently point to an unchanged monetary policy stance at BoC's March meeting. The central bank will most likely announce to keep its policy rate at 0.25% and keep the statement that 'conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target'. Currently, the market anticipates the first rate hike will be in 3Q10 the earliest. More in Unchanged Monetary Policy Stance Expected at BoC's Meeting.
Commodity currencies are generally resilient recently. As discussed before, we'd slightly prefer Canadian dollar over Australian dollar in near term and the view remains unchanged. The choppy recovery of EUR/CAD from 0.9928 is clearly corrective in nature. The fall from 0.9912 is expected to resume sooner or later to 100% projection of 0.9912 to 0.9197 from 0.9629 at 0.8914, which is close to 38.2% retracement of 0.7164 to 0.9912 at 0.8862.
Elsewhere, the oversold sterling staged a recovery overnight but remains generally weak. We'd continue to expect more downside going forward. Dollar failed to take out recent high against dollar and Swiss while dollar index was also limited below 81.34 resistance and pulled back sharply. We'd still neutral for the moment and wait for an eventual downside break out in EUR/USD which should also trigger a break out in dollar index through 81.34 resistance towards 82.63. In any case, dollar index is expected to be supported by 79.56 cluster support holds (38.2% retracement of 76.60 to 81.34 at 79.52).
On the data front, Japan unemployment rate dropped from 5.2% to 4.9% in January. Household spending rose less than expected by 1.7% yoy in January. Swiss GDP is expected to rise 0.4% qoq, drop -0.5% yoy in Q4. UK construction PMI is expected to rise slightly to 48.7 in February. Eurozone CPI is expected to slow to 0.9% yoy in February. PPI is expected to rise 0.6% mom, drop -1.1% yoy in January.
