The Reserve Bank of Australia (RBA) concluded its monetary policy meeting on Tuesday by leaving interest rates unchanged at 4.25 percent, which was widely expected by markets. A small percentage of the market was expecting a rate cut, so the “unchanged” decision was a slight positive for the Aussie Dollar. The accompanying policy statement did show a more dovish tone than what had been seen previously, with growth concerns being highlighted.
The change in language to reflect a dovish bias will likely lead more analysts to forecast a cut in the base rate at the next RBA policy meeting, so markets will be paying special attention to the quarterly inflation report that will be released on April 24th, to get a sense of what to expect. A rate reduction would make things interesting in the forex markets, as we would expect the AUD to post declines, but with overnight rates at 4 percent, the currency would still offer a better carry value than any other G10 currency, so longer term downtrends will not be likely to gain much momentum.
Macro data today will come only with the FOMC minutes from the March 14th meeting, and this will give markets some sense of the policy agreement within the US Federal Reserve. A good deal more of the market’s attention, however, is focused on the next FOMC meeting (to be held on April 25th). At this meeting, the Fed will be updating its interest rate targets. We have not seen an update since January, so the main question will be the level of consensus within the committee, given that economic data has been relatively strong since the beginning of this year.
In terms of price activity, the EUR/USD remains relatively elevated in the 1.3310-1.3360 region, while the USD/JPY is stalling ahead of recent highs at 81.50-82.20. Asian equities markets are mixed on the session and the S&P 500 hit a new four-year high at 1420. The next main event for the week will be the ADP employment report, as traders will use the information as a gauge for what to expect on Friday’s critical Non Farm Payrolls release.
Technical Analysis:
The GBP/USD is coming into some important resistance levels, with historical and Fibonacci zones coming together in the 1.6080 / 1.6140 zone. Expect a test of this level, as prices broke above the previous hourly range. Sell positions can be established in this region, however, as the longer term momentum remains negative and the current rally is expected to have some difficulty sustaining itself. Key support is now seen at 1.5620.
Gold prices are seen struggling below the 1680 level, as trend activity continues to post lower highs after failing at 1800. We have seen multiple tests of Fibinacci support at 1620, which is the 61.8% retracement of the move from 1540. A downside break is looking imminent and will confirm that a top is in place at the daily highs. Resistance has moved down to 1695, and prices are expected to be contained by these parameters for the remainder of the week.
