AUSTRALIAN DOLLAR, RBA, LOWE, CHINA, CAIXIN PMI – TALKING POINTS:
- Australian Dollar gently higher as Lowe talks down RBA rate cut bets
- Soft Chinese PMI figures, lingering stimulus expectations cap advance
- Chart setup hints at bearish bias, key resistance now above 0.68 mark
The Australian Dollar edged up as RBA Governor Philip Lowe struck a cautiously optimistic tone in a speech to the National Press Club, cooling interest rate cut expectations. The central bank chief cited existing stimulus and long policy transmission lags reasons to keep the benchmark Cash Rate as-is. A rise in unemployment – it was said – could justify further cuts were it to materialize.
In surveying the forces driving Australia’s economic outlook, Lowe optimistically asserted that 2020 GDP will be “largely unaffected” by the recent spate of wildfires. He warned that the Wuhan-strain coronavirus is a new uncertainty however, whose impact it is too early to discern. Lowe added that while the case can be made to ease further, doing so would carry its own risks, including another “borrowing boom”.
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These remarks drove front-end Australian bond yields higher alongside the currency, implying a pivot to a less-dovish setting for RBA policy expectations in their wake. Momentum was quick to fizzle out however. Futures markets still price in with certainty at least one 25 basis point rate cut and a 56 percent chance of a second one. Meanwhile, Chinese PMI data put economic activity growth at a 4-month low in January.
Looking at overall positioning, AUD/USD is in digestion mode after scoring its largest one-day rise yet of 2020 amid a swell in market-wide risk appetite. Nevertheless, prices remain within the confines of the downtrend established since late December. A daily close above support-turned-resistance at 0.6755 may open the door to challenge that move’s outer boundary, now at 0.6818.
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— Written by Ilya Spivak, Currency Strategist for DailyFX.com
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