RBA starts to sound hawkish

2 November, 2016

Today's market revelations from the Reserve Bank of Australia regarding interest rates were an interesting turn to say the least. Many traders have been expecting the easing bias to continue for the RBA in the long term, given the state of the economy. But instead, they found themselves listening to a much more hawkish RBA than anyone expected and it would seem that interest rate cuts may be completely off the table for now. In line with the statement the RBA also believes that inflation is likely to pick up as well, and commodity prices are recovering albeit a struggle at times. For some time now we have seen a reserved approach from the RBA so for traders this was very much a bullish signal and the AUDUSD responded in turn jumping higher. However, the RBA still considers the AUDUSD to be too high and complicating the current recovery of the economy. Sadly if you're going to suddenly turn hawkish then markets are likely to look for further yield out of the Australian economy when all others are lagging.

On the charts the AUDUSD has been showing weaker waves than ever before with a pattern of lower highs every time we see a jump. It will be interesting to see if this can be maintained in the long run given the hawkish tone that has occurred.  Any retreat downwards is likely to find dynamic resistance around the 100 day moving average mark, but also at 0.7616. I previously was slightly bearish, but less likely to be so these days unless we see the Chinese economy struggle and inflation continue to be sluggish for the Aussie economy. Any jumps higher looking for resistance are also likely to find it solidly at 0.7730, which will be a touch and go point to see if the AUDUSD can sustain new heights on the charts.

Across the water in the US market and oil continues to show surplus build ups with social media reporting a build up of 9m barrels before the official release, which is naturally in turn causing selling in oil all together. With OPEC failing to come to any sort of agreement, it feels very much the case that we will see oil prices continue to dip and slide lower on all this news. Only a sustained agreement could genuinely stop the bears from coming back into the market and taking a swipe every time the oil inventory data shows a build-up.

Oil has slid aggressively down the charts and has held up on support at present at 46.19 with the market now looking to position itself for the official data due out on Thursday, which will likely cause some strong swings in the market. So far we've also seen very little profit taking, which means we could see a bullish candle at a major support level in the near future. I would take this as caution around a reversal and focus on the trend which continues to be one of the stronger points of trading oil in the present climate.


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