Aussie Mildly Higher After RBA Minutes, Dollar Continues to Soften

Australian Dollar trades mildly higher in Asian session, after RBA minutes affirmed that further tightening is underway. New Zealand is also supported by somewhat steady risk sentiment. Canadian Dollar is also limited after WTI crude oil rebounded and regained 100 handle. Euro and Dollar are the softer ones for now, followed by Sterling, which awaits UK job data.

Technically, the case of a deeper near term pull back in Dollar is building up. Attention will be on 1.2055 minor resistance in GBP/USD and 0.6873 minor resistance in AUD/USD. Firm break of these levels will confirm short term weakness in the greenback, which should be quick broad-based, except versus Yen.

In Asia, at the time of writing, Nikkei is up 0.56%. Hong Kong HSI is down -1.21%. China Shanghai SSE is down -0.51%. Singapore Strait Times is down -0.12%. Japan 10-year JGB yield is up 0.0024 at 0.237. Overnight, DOW dropped -0.69%. S&P 500 dropped -0.84%. NASDAQ dropped -0.81%. 10-year yield dropped -0.03 to 2.930.

RBA minutes: Arguments for 50bps hike stronger than 25bps in Jul

In the minutes of the July 5 meeting, RBA noted that members considered raising interest rates by 25bps or 50bps. The arguments for a 50bps hike were “stronger”.

“The level of interest rates was still very low for an economy with a tight labour market and facing a period of higher inflation,” the minutes noted. “Members viewed it as important that inflation expectations remained well anchored and that the period of higher inflation be temporary.”

Also, board members agreed that “further steps would need to be taken to normalise monetary conditions in Australia over the months ahead,” The “size and timing” of future hikes will be guided by “incoming data” and assessment of the outlook for “inflation and labor market”.

RBA Bullock: Households in fairly good position for rate hikes

In a speech, RBA Deputy Governor Michelle Bullock said households are in a “fairly good position” for interest rate increases. It’s “unlikely” that there will be substantial financial stability arising from the household sector, but risks are “a little elevated”.

The household sector has “large liquidity buffers”, with “substantial equity” in housing assets. Much of the debt is held by “high-income households” while low fixed rate loans have give time for preparation for high rates. But rate hikes could impact households’ debt servicing burden and cash flow. Risk play out will also be included by future path of employment growth.

“This, along with the Board’s assessment of the outlook for inflation, will be important considerations in deciding the size and timing of future interest rate increases,” she concluded.

Looking ahead

UK employment, Swiss trade balance and Eurozone CPI final will be released in European session. Later in the day, US will publish housing starts and building permits.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6783; (P) 0.6819; (R1) 0.6848; More…

Intraday bias in AUD/USD remains neutral with focus on 0.6873 minor resistance. Firm break there should confirm short term bottoming at 0.6680, on bullish convergence condition in 4 hour MACD. Stronger rebound should then be seen to 55 day EMA (now at 0.6982) and above. On the downside, though, break of 0.6680 will resume larger down trend to next fibonacci level at 0.6461.

In the bigger picture, price actions from 0.8006 could still be a corrective pattern to rise from 0.5506 (2020 low). But current downside acceleration is raising the chance that it’s a bearish impulsive move. In either case, outlook will remain bearish as long as 0.7282 resistance holds. Next target is 61.8% retracement of 0.5506 to 0.8006 at 0.6461.

Economic Indicators Update