The RBA remained on hold today, as was widely anticipated. In the statement accompanying the decision, policymakers maintained a balanced tone overall, offering very little new information regarding the next policy move. The Bank was slightly more upbeat on the labor market, while there was no mention to the recent signs of a slowdown in China, making the tone of the statement appear somewhat more sanguine than previously.
As a result, the Aussie gained somewhat on the decision, recovering some losses it posted a couple of hours earlier after trade data for Q1 missed their forecast, generating concerns that tomorrow’s GDP print for Q1 may be weaker than previously anticipated. In any case, given the lack of any worried signals and the Bank’s overall balanced bias, we think that AUD could remain supported for a while, at least ahead of tomorrow’s GDP data.
AUD/USD edged north yesterday, after it hit support near 0.7420 (S2). However, the advance was halted by the downside resistance line drawn from the peak of the 17th of April, where traders awaited for the RBA policy meeting. At the event, the pair rose little as the Bank offered no surprises. We believe it may continue higher and perhaps break above the aforementioned downside line. Such a break may encourage the bulls to challenge the 0.7515 (R1) resistance, marked by the highs of the 23rd and 25th of May. Another break above that level is possible to pave the way for the next resistance of 0.7550 (R2).
Decent wage data lift the yen
The Japanese currency came under renewed buying interest overnight, following the release of the nation’s wage data for April. Average cash earnings rose by more than expected, while last month’s rate was revised higher. Even though JPY has not really responded to economic data ever since the BoJ introduced QQE with yield-curve control, considering that wage growth is seen as a signal of future inflation, this may have fueled bets regarding a potential pick-up in inflationary pressures.
Indeed, Japan’s labor market is extremely tight at the moment, with the unemployment rate resting at a 22-year low of 2.8%. We will keep a close eye on upcoming wage growth and inflation prints. Any further signs in coming months that wage and/or inflationary pressures are picking up could raise speculation with regards to a less dovish stance by the BoJ in the not-too-distant future.
USD/JPY tumbled overnight, breaking below the key support (now turned into resistance) of 110.30 (R1) to stop near our next obstacle of 109.70 (S1). The break signals the downside exit of the sideways range that contained the price action since the 17th of May, which in our view turns the short-term outlook back to the downside and increases the probability for further declines. Even if the pair rebounds to recover some of the overnight losses, we believe that there is the likelihood for the bears to take control again near the 110.30 (R1) zone and push the rate lower for another test near 109.70 (S1). A decisive break below that level is possible to initially aim for our next support of 109.35 (S2).
Today’s highlights:
During the European day, the economic calendar is relatively quiet. The only noteworthy indicator we get is Eurozone’s retail sales for April, though this is usually not a major market mover.
In the US, JOLTS jobs openings for April are due out and the forecast is for a decline in the figure.
From Canada, we get the Ivey PMI for May. Expectations are for the index to have declined, albeit slightly. Even though something like that could prove negative for the Loonie, considering that the figure is expected to have remained at a very elevated level, we don’t expect any negative reaction to be major.
AUD/USD
Support: 0.7455 (S1), 0.7420 (S2), 0.7395 (S3)
Resistance: 0.7515 (R1), 0.7550 (R2), 0.7600 (R3)
USD/JPY
Support: 109.70 (S1), 109.35 (S2), 108.90 (S3)
Resistance: 110.30 (R1), 110.75 (R2), 111.25 (R3)
