Market summary
- The RBA released the minutes of the meeting from their June hike, with traders latching on to the debate between a pause or a hike being ‘finely balanced’ (as opposed to an outright hike), sending AUD pairs and AU bond yields broadly lower
- AUD/USD beneath 68c (and the ‘RBA-pause highs) and the ASX 200 rose for a seventh day
- Yet the threat of further hikes seem apparent to my eyes, with Westpac, NAB and ANZ on par with a July hike – which makes next week’s inflation data the more important
- RBA assistant governor Bullock sounded hawkish overall, saying employment is too tight for their inflation target, economy would be more ‘balanced’ with 4.5% unemployment (currently 3.6%), economy needs to grow below trend for a while, need to slow demand (which migration is adding to) and higher rates are the only tool the RBA has to curb inflation
- US housing data is surpassing expectations with builders confidence moving into positive territory in June ad housing starts rising 21.7% m/m (or 5.7% y/y), which is good news for those hoping for a soft landing (although it is also inflationary)
- The PBOC provided further stimulus for China’s economy by cutting the 1-year prime loan rate by 10bp
- South Korean producer prices contracted -0.3% in May for its second month of deflation (good news for trade partners and consumers)
- The S&P 500 retraced for a second day as investors booked profits after a strong run, ahead of Jerome Powell’s testimony to congress
Events in focus (AEDT):
- 09:50 – BOJ minutes of the meeting
- 16:00 – UK inflation report
- 00:00 – Jerome Powell testifies to congress (prepared remarks are usually released ahead of the event, which then leaves the Q+A as another potential market driver
ASX 200 at a glance:
- The ASX 200 rallied for a seventh consecutive day
- 10 of its 11 sectors were higher on the day
- However, RSI (2) has been overbought for four days
- And 7400 / April high overhead, the index appears likely headed for a pause in trend or a retracement
- Beyond that, OBV (on balance volume) shows support for the rally overall
AUD/USD 1-hour chart:
Clearly, AUD/USD did not provide any meaningful technical bounce from the 68c support zone, as prices broke through the key support area as it tracked bond yields lower. But it has rebounded from prior cycle lows just above 0.6750 and now hovers just beneath the daily pivot point and 68c handle whilst sitting in between the ‘RBA-pause’ daily high and open. We now need to see the market tip its hand, with a break beneath 0.6778 suggesting another crack at 0.6750, but we’d prefer to wait for a break above 0.6805 before assuming a move higher towards the daily R1 resistance zone.
-- Written by Matt Simpson
Follow Matt on Twitter @cLeverEdge
