AUD/USD drops towards 0.7000 as RBA tames immediate rate-hike concerns despite ceasing QE
- AUD/USD slumps 50-pips to refresh intraday low following the RBA announcements.
- RBA ends QE but rejects concerns over near-term increase in interest rates,
- Global markets remain sluggish as Fedspeak, updates from Russia test moves ahead of ECB, BOE.
- US ISM Manufacturing PMI, risk catalysts will be important for the day.
AUD/USD stands on the slippery grounds towards 0.7000 as traders fail to respect the Reserve Bank of Australia’s (RBA) announcement of ceasing the Quantitative Easing (QE) on early Tuesday. In doing so, the Aussie pair drops around 0.45% intraday with an immediate fall of near 50-pips following the RBA verdict.
As expected, hawkish hopes of the RBA drowned AUD/USD prices even as the Aussie central banker announced the official end of the bond purchase program, while keeping the benchmark interest rate unchanged at around 0.10%. The reason could be linked to the comments like, “Ceasing purchases under the bond purchase program does not imply a near-term increase in interest rates.”
Read: Breaking: RBA ends QE and holds rates at 0.1%, AUD/USD falls 50 pips on knee-jerk
Earlier in the day, Australia Retail Sales for December marked the lowest prints since mid-2020, to -4.4% MoM versus 3.9% forecast and 7.3% prior, while portraying the virus-led economic impacts. Also decorated the Aussie economic calendar in Asia was the softer-than-forecast Commonwealth Bank of Australia Manufacturing PMI for January, 55.1 versus 55.3.
In addition to the downbeat Aussie data, mixed comments from Australia Prime Minister Scott Morrison during an address to the National Press Club also challenged the AUD/USD pair before the RBA. “We must respect the virus, but we must not live in fear of it,” said Aussie PM Morrison per ABC News. The national leader adds, "You must be prepared to listen to the advice, but also to make the decisions that strike the right balance.” It should be noted that the Aussie covid numbers are on a downtrend since January 13, recently steady around 34,000 infections.
On the other hand, receding fears of the Russia-Ukraine tussles join the recent news from Reuters that the US weighs more troops to Eastern Europe beyond 8,500 on alert. Additionally, mixed concerns over the size of the Fed’s rate hike, mainly challenged by the recent Fedspeak highlighting inflation fears but staying away from confirming a 0.50% rate lift, sour the trading mood and probed the AUD/USD pair’s recovery moves previously.
It’s worth observing that comments from the OECD Secretary-General Mathias Cormann, suggesting the global inflation is seen receding over the next two years as central banks normalize monetary policy settings, seems to have challenged the AUD/USD bears before the RBA.
Against this backdrop, the US 10-year Treasury yields remain sluggish around 1.77% whereas the S&P 500 Futures drop 0.45% intraday whereas the Asia-Pacific shares trade mixed amid off in China and Hong Kong.
Having witnessed the initial reaction of the RBA, AUD/USD traders will wait for the US ISM Manufacturing PMI for January, expected 57.5 versus 58.7 prior, for intraday moves. However, Wednesday’s speech from RBA Governor Adrian Orr and risk catalysts will be more important for the pair traders to watch.
Read: ISM Manufacturing PMI January Preview: Fed policy counts on a continuing US expansion
Technical analysis
AUD/USD consolidates recent losses around the 18-month low as oscillators fade bearish bias of late. Recovery moves, however, need to cross an eight-day-old resistance line and the 50-DMA, respectively around 0.7085 and 0.7130, on a closing basis to recall AUD/USD bulls.
Alternatively, the 0.7000 threshold will precede the year 2021 low and the recent bottom, close to 0.6995 and 0.6965 in that order, to challenge the short-term sellers. Following that, a downward sloping trend line from August, near 0.6930, will test the quote’s further declines ahead of the 61.8% Fibonacci Expansion (FE) of the late June 2021 to mid-January 2022 upside surrounding 0.6920.