Bid on RBA rate cut
Institution : FXCM Asia Currency Strategist
2012/04/23 17:15
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The Dow Jones FXCM Dollar Index failed to break above the key resistance at 10,080 again, as the market is awaiting further indications ahead of the FOMC meeting. In addition, the better-than-expected data from Germany and the United Kingdom have boosted the risk appetite, and the major currencies were taking this as a chance to rebound from their critical supports. The FOMC meeting is going to held on Tuesday and Wednesday, and the market expects the policy is likely to be kept on hold at the moment. Although the U.S. employment figures were disappointing in March, it was not enough to prompt further action by the Fed. Investors should not expect to see any commitment on actual policy action from the Fed until June, but it will be critical to see if Fed officials issue guidance on further economic conditions before they outline further policy.
Before the FOMC meeting, it is more important to focus on Tuesday’s Australian CPI announcement, as it may open the door for the RBA to lower its interest rate by another 0.25%. The RBA had a dovish tone in its recent meetings and emphasized that its rate decision will depend on the inflation data. Australia has just announced its Q1 PPI result on Monday, which shows the wholesale inflation has slowed to an annual pace of 1.4%, the weakest reading since Q2 2010. If today’s CPI data continues to confirm a moderate inflation outlook, it will reaffirm the expectation that the central bank will cut interest rates in May. The AUD/USD recently rebounded from 1.0240 (critical support provided by the Fibo retracement 61.8%) but it was being rejected at 1.0450 and remains relatively soft against other major currencies; a downside penetration below 1.0240 will mean the Australian Dollar is facing more rapid downside pressure and will point towards 1.0050.
Last but not least, the Bank of Japan is holding its rate decision meeting on Friday, and the market is expecting the Bank to take further ease monetary policy in order to move the inflation closer to its target at 1%. The USD/JPY should be well-supported between 79-81 levels based on the bank’s policy, providing an entry level for the pair in the long term.
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