Overnight, the Reserve Bank of Australia released the minutes from its latest policy meeting. The minutes reflected more or less the meeting statement, highlighting the softness in labor market indicators, and that the recently announced supervisory measures with regards to lending could ease financial stability risks.
As we noted when we had the meeting, this suggests to us that once these measures take effect, the Bank would be more flexible to cut rates again if needed without being concerned that its actions would amplify risks to the economy. However, following the remarkable jobs report for March, released after the meeting, we don’t think that the Bank will proceed with something like that at its upcoming gathering, scheduled on the 2nd of May.
AUD/USD reacted little at the time the minutes came out. The pair has been trading south ahead of the release, and continued drifting lower in the aftermath. It started sliding after it hit resistance near the 0.7600 (R1) barrier and the 50% retracement level of the March 21st – April 12th downtrend. The decline was stopped by the 0.7555 (S1) support, where a decisive dip is possible to carry more bearish extensions, perhaps towards our next support of 0.7515 (S2) marked by the inside swing high of the 11th of April.
With regards to the bigger picture of the pair, the price structure on the daily chart suggests a neutral outlook. The pair has been oscillating within a wide range between the 0.7160 and 0.7800 zones for more than a year.
US Treasury Secretary helps the dollar recover somewhat
On Monday, the US dollar recovered some of its latest losses against the yen after the US Treasury Secretary Steven Mnuchin told the Financial Times that a strong dollar would be a good thing in the long term. His remarks come a few days after US President Trump jawboned the currency by saying that it is “getting too strong”. However, Mnuchin said that Trump’s remarks were about the short-term and agreed that this is hurting exports.
USD/JPY traded higher after it hit support near the 108.15 (S2) level, and broke back above 108.80 (S1). The recovery was stopped slightly below our resistance of 109.30 (R1). Even if the pair continues to trade higher for a while, we would tread any further recovery as a corrective move and we expect it to remain limited. Tensions over North Korea are far from diminished and as such, headlines that could heighten these concerns further may cause the pair to turn down again. A dip back below 108.80 (S1) may confirm the case and is possible to pave the way for another test near 108.15 (S2). The nervousness over the economic dialog between the US and Japan, as well as the upcoming French presidential elections could also keep any USD/JPY rebounds limited.
Today:
From the US we get industrial production for March. Expectations are for industrial output to have accelerated to +0.5% mom from +0.1% mom the previous month, which could support somewhat the greenback. However, for the reasons we just outlined, we expect any possible USD-strength from this data point to remain short-lived, especially against safe havens like the yen. We also get building permits and housing starts, both for March.
From New Zealand, the GDT (Global Dairy Trade) index is coming out, though no forecast is available. Although this could impact the Kiwi at the release, we believe that NZD-traders have their gaze locked on the nation’s CPI data for Q1 due out on Thursday. As such, any reaction on the GDT index could stay limited.
As for the speakers, we have one scheduled on the agenda: Kansas City Fed President Esther George.
AUD/USD
Support: 0.7555 (S1), 0.7515 (S2), 0.7475 (S3)
Resistance: 0.7600 (R1), 0.7625 (R2), 0.7650 (R3)
USD/JPY
Support: 108.80 (S1), 108.15 (S2), 107.70 (S3)
Resistance: 109.30 (R1), 110.00 (R2), 110.75 (R3)
