The RBA remained on hold today, as was widely anticipated. The statement accompanying the decision was neutral overall, and very similar to the previous one. The most noteworthy change related to the Bank’s view of the labor market. Policymakers acknowledged the latest recovery in jobs, indicating that labor indicators ‘remain mixed’, which is an upgrade from the previous statement that they had ‘softened recently’. Perhaps due to this slightly more upbeat language, AUD gained somewhat after the decision.
However, we think that the short-term outlook of the Aussie remains cautiously negative. We would like to see consistent improvement in the nation’s economic data before we assume any change in the currency’s outlook.
AUD/USD had been drifting higher ahead of the meeting and got another boost on the announcement. Nevertheless, the advance was stopped by the downside resistance line taken from the peak of the 30th of March. This is in line with our view that the short-term outlook remains somewhat negative and that we would treat any rebound on the RBA as a corrective move. We believe that the bears may take advantage of the rate’s proximity to the aforementioned downside line and perhaps push the pair down for another test near 0.7520 (S1). A dip below that barrier could confirm that the correction is over and that we are back in the direction of the prevailing downtrend. Such a dip may initially aim for our next support of 0.7490 (S2).
We continue to expect the RBA to remain on hold in the foreseeable future, absent any shock. Having said that, we think that the risks surrounding the Bank’s language are likely asymmetrical. We believe that in case of a deterioration in the data then the RBA will probably shift back to a dovish stance, but in case of progress the Bank is unlikely to sound hawkish, on concerns it may trigger a speculative rally in AUD.
Today is a PMI day:
During the European day, the most noteworthy economic indicator we get will probably be the UK manufacturing PMI for April. The forecast is for the index to have declined somewhat. Coming on top of the slowdown in GDP for Q1, a decline in the manufacturing index could generate speculation that this softness in economic activity may have rolled over into Q2, and may thereby reverse some of the pound’s recent gains. Having said that, we think that the currency’s near-term direction will be primarily decided by opinion polls and developments regarding the upcoming election, instead of economic data, at least until the political landscape clears out somewhat.
GBP/JPY has been trading in a steep uptrend since the 17th of April. Nevertheless, the rate now consolidates slightly below the key resistance zone of 144.75 (R1), defined by the peak of the 27th of January. Given that the uptrend looks very steep and that there is negative divergence between our short-term momentum indicators and the price action, we see the likelihood for a corrective setback before the bulls decide to take action again. A dip below 144.00 (S1) on a potential decline in the PMI today may confirm that and could open the way for an initial test near 143.30 (S2).
We also get manufacturing PMIs for April from both Sweden and Norway.
What’s more, we will get the final manufacturing indices for the month from several European countries and the Eurozone as a whole, but the final figures are usually not major market movers. The bloc’s unemployment rate for March is also due out and the forecast is for a decline. Even though this is usually not a major market mover either, it could be another piece of data entering the basket of those supporting a more optimistic stance by the ECB at one of the upcoming meetings.
AUD/USD
Support: 0.7520 (S1), 0.7490 (S2), 0.7475 (S3)
Resistance: 0.7560 (R1), 0.7585 (R2), 0.7600 (R3)
GBP/JPY
Support: 144.00 (S1), 143.30 (S2), 142.40 (S3)
Resistance: 144.75 (R1), 145.40 (R2), 146.25 (R3)
