Yen’s strong rally continues in Asian session today, with help from risk-off sentiment as well as extended decline in US benchmark yields. Stocks are trading lower while investors are cautiously waiting for any concrete action by China over US House Speaker Nancy Pelosi’s visit to Taiwan. Dollar and Euro are also mildly firmer with Swiss Franc. On the other hand, Australian Dollar is leading other commodities Lower. RBA’s expected rate hike and a slightly more cautious statement provides little support to the Aussie.

Technically, EUR/USD finally breaks out of range to resume the rebound from 0.9951, even though momentum is unconvincing. Next focus is 1.0348 support turned resistance. Firm break there will add to the case of a larger scale rally, even that could still be a corrective move. Meanwhile, Gold is also extending the rise from 1680.83, with break of channel resistance. Firm break of 1786.65 will solidify the case of near term bullish reversal. Both EUR/USD’s and Gold’s next move might help each other.

In Asia, at the time of writing, Nikkei is down -1.43%. Hong Kong HSI is down -2.71%. China Shanghai SSE is down -2.86%. Singapore Strait Times is down -0.16%. 10-year JGB yield is down -0.0131. Overnight, DOW dropped -0.14%. S&P 500 dropped -0.28%. NASDAQ dropped -0.18%. 10-year yield dropped -0.036 to 2.606 (and it’s down further at around 2.55 in Asia).

RBA hikes 50bps, normalization to continue but not on pre-set path

RBA raises the cash rate target by 50bps to 1.85% as widely expected. It also maintains hawkish bias, and noted, “the Board expects to take further steps in the process of normalising monetary conditions over the months ahead”.

Nevertheless, the normalization is “not on a pre-set path”. “The size and timing of future interest rate increases will be guided by the incoming data and the Board’s assessment of the outlook for inflation and the labour market,” it added.

RBA forecasts inflation to hit around 7.75% over 2022, then slow to a little above 4% over 2023, and then around 3% in 2024. GDP growth is projected to be at 3.25% over 2022 and 1.75% over the next two years. Unemployment rate is forecast to climb from current 3.5% to around 4% at the end of 2024.

“Behaviour of household spending” continues to be a “key source of uncertainty”. The central bank will “paying close attention to how these various factors balance out as it assesses the appropriate setting of monetary policy.”

AUD/JPY falls after RBA, heading to 90 projection level

AUD/JPY’s decline continues today after RBA delivered the 50bps rate hike as expected, and turned a bit cautious about the policy normalization path ahead. Of course, Yen’s persistent, broad-based rally elsewhere is a factor pressing the cross.

With 91.41 support taken out, immediate focus is now on 100% projection of 96.86 to 91.41 from 95.68 at 90.23. Firm break there will be a sign of downside acceleration. That would also raise that chance that it’s already in correction to the medium term up trend. In this bearish case, current decline should target next support zone between 95.78 and 87.28 next.

Nevertheless, above 92.27 minor resistance will indicate stabilization first, before taking the next move.

Looking ahead

Swiss will release SECO consumer climate and SVME PMI in european session. Canada will release PMI manufacturing later in the day.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6982; (P) 0.7014; (R1) 0.7060; More…

AUD/USD edged higher to 0.7045 but quickly retreated again. Intraday bias stays neutral for the moment. On the upside, break of 0.7045 will resume the rebound from 0.6680 to 0.7282 key resistance next. On the downside, however, break of 0.6858 minor support will argue that the rebound is over. Intraday bias will then be back on the downside for retesting 0.6680 low.

In the bigger picture, price actions from 0.8006 (2021 high) could still be a corrective pattern to rise from 0.5506 (2020 low). But current downside acceleration, as seen in weekly MACD), 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