RBA poised to act in current market

16 August, 2017

The Australian dollar continues to be in a bit of a freefall as traders rally on the back of a resurging USD as well as a risk-off attitude when it comes to commodity currencies as of late. One of the major developments though around the Australian economy has been the rise in household debt which is being fed by low interest rates in Australia. Now the Reserve Bank of Australia (RBA) is getting a bit worried and today's wage growth figures are likely to be quite major, on the basis that if the figures are showing sluggish growth then the RBA may be forced to act in the market. If the RBA does act it will be in the form of a rate rise and this would certainly be a double edged sword for the AUDUSD. It could be the case that it does help reduce debt levels, but fixed interest rate traders would look to jump back on board the AUDUSD train in a hurry, and a weak result today with wage growth could actually trigger a jump for the pair.

On the charts the AUDUSD has cruised lower recently as the bears take hold, and it's looking very much like a classic retracement on the charts. So far it has pushed through the 20 day moving average and is looking like it will test support at 0.7761 and 0.7657 in the future if this slide continues. In the event it does look to push back upwards resistance levels can be found at 0.7901 and 0.8000, but a push through the psychological 80 cent level would be a very hard ask for the AUDUSD unless we saw a major turn in its economic good fortunes in the near future.

One of the more interesting developments has been the movements of the S&P 500 which had a large pull back in the previous week, but has managed to find some legs this week on the chart. American data was positive today on the basis that retail sales jumped to 0.6% m/m (0.3% exp) which is a positive for the US economy. However, there is still a large amount of worry in the markets around the current state of American politics which can swing on a day to day basis. This in turn has seen equity markets a little coy, and also a resurgence in speculative metal markets where traders are looking to hedge.

The S&P 500 though has struggled to gain momentum today after a strong Monday opening. The push upwards today to come through the trend line was met with resistance and the likelihood of pushing through resistance at 2484 continues to be problematic as the market has show time and time again that any movements to this region seem to encounter bears who believe that we need a lot more information to go higher. If it does fall I'm still watching for that 100 day moving average to act as the first target level for traders and support levels at 2406 and 2353.


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