AUD/USD: The Break That Wasn’t, JPY Edges Stronger

This time, the Aussie brushed off weak Chinese data, focusing instead on a strong Australia retail sales report and a complacent RBA. World services surveys up today for Europe and the US ahead of Thursday’s key BoE/ECB meetings.

AUD bobs back higher
The AUD/USD broke important support on Monday’s developments out of Asia, but this seems to have been a premature break as the RBA meeting overnight and various Australian data points saw rates at the front end of the Australian yield curve higher. The AUD bounced back into the recent range, putting the shortest term bearish arguments in doubt. If the pair fails to effectively remain above 1.0200/25 area from here, the bears may have a chance, but still need to see the 1.0150 level taken out again. Looking higher, the resistance will come in now at around 1.0325/1.0350 if the pair manages to maintain a rally stance.

Most were expecting no change to the 3.00% Cash Target rate from the RBA. There was some negative language on the risk from downside global growth and vulnerability of financial markets, as well as the prediction that a peak in resource investment is approaching. On the positive side, Europe’s improved conditions were called a positive compared to a year ago (but what about latest uncertainties….?), resource exports were said to be strengthening and Asian growth was described as stabilizing. Most of the AUD move unfolded before the RBA statement was even released, so the question is whether this was really much of a catalyst. The strong retail sales number for January was perhaps more of a market mover, as there was little to take home from this RBA meeting.

Certainly there was little support for AUD from Chinese data, as the HSBC Services PMI came in at 52.1 vs. 54.0 in January, though again, we have to consider the New Year effect, etc.

JPY eases stronger after hearings
Both BoJ Deputy Governor candidates Nakaso and Iwata, spoke at confirmation hearings overnight. Iwata is the controversial candidate because of his long criticism of BoJ policy and favouring of more aggressive moves. While Iwata said that he favours keeping the foreign asset purchase option on the table, he claimed that it was not his first choice. He also said he favoured an alteration of the law governing the BoJ so that the bank could choose what tools would be most effective in helping Japan to reach its inflation target. The JPY was perhaps a bit stronger overnight as the opposition DPJ’s Tsumura told reporters that he is against Iwata’s nomination. This is not an entirely a new development, as some opposition party officials have reportedly indicated in unattributed comments before that they would be against his nomination.

Looking ahead
We’ve got the rest of the major services surveys out in Europe and the US today, and an Australia GDP report out tonight in the Asian session followed by a Bank of Canada meeting tomorrow. The CAD has moved into a consolidation phase after its impressive move above 1.0300 recently and we’ll see if the BoC meeting provides a trigger for further consolidation before the currency weakens again.

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Chart: USDCAD
The USD/CAD has rallied convincingly from its base, although in the big-big picture it remains in the longer term range. In the near term, let’s see if the Bank of Canada meeting tomorrow provides fresh reason to sell the currency. If not, there is still plenty of room for further consolidation lower toward the ultimate support at 1.0100, though the rally would look healthier if support is found in the 1.0200/1.0175 area or higher. The Ivey PMI number is also up tomorrow as Canadian data surprises have been strongly negative, and oil prices have suffered a tremendous setback as Canada’s terms of trade are also eroding. For the long term, I’m looking for a much bigger move higher for this pair well above 1.0500 – having projected the possibility of an eventual move to 1.1600+ .