AUD/USD retests 200-day MA ahead of jobs, ASX rebound looks stretched

Wall Street indices were higher on Wednesday and the S&P 500 notched up a fifth consecutive daily gain as the latest US inflation report signalled Fed cuts but no recession. Although the stronger moves were seen on Tuesday following weaker-than-expected producer prices.

 

The RBNZ cut their cash rate by 25bp to 5.25%, and signalled further cuts are to follow. Their OCR projection indicates another cut is to arrive by the end of the year, and a further 140bp of cuts could arrive by the end of 2025. However, the “pace of further easing” will depend on incoming data, which leaves it up in the air whether the next cut will arrive at their October or November meeting. NZD/USD handed back all of its post US-CPI gains and went on to close with a bearish engulfing day during risk-off trade.

 

 

The annual rate of US inflation slipped into the upper ‘2’s for the first time since March 2021, rising 2.9% compared with 3% expected, or 0.2% m/m. Core CPI came in as expected at 3.2% y/y (3.3% prior) and 0.2% m/m. This plays nicely with the soft landing scenario for the Fed, with Fed fund futures now pricing in six cuts by June. While they suggest a 62.5% probability of a September cut (a 50bp cut was ~50% a few days ago), none of the probabilities between November and June are over 50%. Even if they’re trying to price in a 50bp December cut.

 

• S&P 500 futures are just shy of 5500, although a 78.6% Fibonacci level and trend resistance loom so perhaps further upside could be limited over the near term
• The Nasdaq 100 formed a small-ranged Rikshaw Man doji around the 50% retracement level
• Dow Jones futures closed above 40k for the first day in nine
• ASX 200 futures (SPI) shows the potential to head for the 7873 – 7900 resistance zone, although Tuesday’s doji and 7 consecutive up days suggests the bullish move could be becoming overextended
• Nikkei 225 futures could extend their gains and head to the 67,600/900 resistance zone near the May and June lows
• The US dollar index briefly fell to a 7-day low before reversing earlier losses, suggesting a ‘sell the fact, buy the rumour’ move on inflation data. Some were clearly positioned for a faster drop on CPI figures.
• EUR/USD rose to its highest level since January and closed above 1.10.
• AUD/USD made a marginal new 3-week high before handing back most of the day’s gains and closed just beneath tis 200-day MA.

 

 

 

Events in focus (AEDT):

RBA cash rate futures implied a 40% change of a 25bp rate cut at the RBA’s next meeting by Wednesday’s close. A soft set of employment figures could tip the market-perceived probability above 50%. The problem is, employment data remains firm and RBA members are retaining a hawkish bias. I very much doubt the RBA will cut soon, but an unemployment rate at 4.2% or higher alongside softer employment growth figures could potentially see Governor Bullock scale back her hawkish tone on Friday when she speaks before the House of Representatives.

 

• 09:50 – JP Q2 GDP
• 11:30 – AU employment report
• 12:00 – CN industrial production, fixed asset investment, unemployment, retail sales, NBS press conference
• 14:30 – JP industrial production
• 16:00 – UK Q2 GDP, industrial production, manufacturing production, trade balance
• 21:30 – ECB minutes
• 22:30 – US jobless claims, retail sales, NY manufacturing, Philly manufacturing
• 23:15 – US industrial production

 

 

AUD/USD technical analysis:

The Aussie posted a solid 4.6% rally since the August low to Wednesday’s high. A pullback to the 200-day therefore doesn’t seem too alarming. That said, a 2-bar bearish reversal has formed on the daily chart (dark cloud cover) with the close and open prices of the past two days sitting around the 61.8% Fibonacci level. Perhaps a deeper pullback towards the 0.6650/65 area could be on the cards.

 

Australia’s job figures need to be factored in, and it looks like prices want to bounce from the 200-day AM looking at the 1-hour chart. Perhaps we’ll be treated to a bounce heading into the jobs report. It is then down to the data as to where it goes next, as another strong employment report could see AUD/USD head back towards the week’s highs as it reinforces the RBA’s hawkish tone. But if we’re treated to a soft set of employment data then bets could be on for the RBA to remove their hawkish bias and send AUD/USD towards 0.6550.

 

ASX 200 futures (SPI 200) technical analysis:

I suspect the upside for the ASX is becoming stretched, although that doesn’t rule out a ‘last hurrah’. The ASX 200 futures market is within its eight consecutive daily gain, although Wednesday’s wide-legged doji suggests sentiment is changing. RSI (2) has been overbought for several days, and the 1-hour chart shows a cluster of resistance levels between 7860 – 7900.

 

Should prices continued higher, my preference would be to fade into moves within the 7860 – 7900 resistance zone in anticipation for a retracement towards 7770.

 

 

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-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge