Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Aussie steady, kiwi lower as central banks dominate
The Australian dollar managed to hold on to recent gains yesterday even as the Reserve Bank of Australia cut interest rates for the first time in more than four years.
The RBA cut the cash rate from 4.35% to 4.10%.
RBA governor Michele Bullock tried to emphasise the central bank’s caution by saying local policy needs to remain restrictive as measured by the so-called neutral rate.
Bullock admitted that the RBA doesn’t know where the neutral rate is – it’s probably the inflation rate plus 100bps which currently equates to 3.4% – and to be restrictive the rate likely needs at least another 50bps added on top. This equation settles at 3.90% and therefore clearly limits the RBA ability to cut – at least for now.
That said, a further slowing of inflation will allow the RBA to cut again.
As a result, the Aussie held mostly steady, with the AUD/USD trading near two-month highs. The AUD gained versus most other currencies.
In other markets, the US dollar was mostly higher overnight, with USD/SGD and USD/CNH both 0.1% higher as the greenback climbed from recent lows.
The kiwi underperformed, with the NZD/USD down 0.5% ahead of a likely 50-basis point rate cut to 3.75%. Financial markets see a 99% probability of a 50bps cut (source: Bloomberg).
The RBNZ decision is due at 2.00pm NZDT (12.00pm AEDT).
AUD/EUR nears two-month high ahead of European PMIs
The euro faltered overnight ahead of Eurozone, German and French flash PMIs to be released later this week, with a small improvement potentially ahead.
The manufacturing PMI for the euro region increased sharply in January, especially for Germany and France. The production and orders indexes are currently below 50, indicating that activity is steadily declining. As a result, we have projected a half-point increase in the manufacturing PMI for the euro region.
The EUR/USD looks to have recently established a range with important medium-term resistance levels still grouped around 1.0500 to 1.0600.
The AUD/EUR has outperformed with the pair near two-month highs after yesterday’s RBA decision, with resistance seen near 0.6100.
For EUR/SGD, the pair still faces strong resistance at 50-day MA level of 1.4086, where SGD buyers may look to take advantage.
GBP stronger as UK consumer confidence faces mixed signals
This Friday, the UK GfK consumer confidence report will be released.
In January, consumer confidence dropped to -22 from -17 the month before.
Since this poll is conducted in the first two weeks of the month, it is questionable whether the data will be dominated by persistent trade uncertainties and a poorer outlook for economic growth, which should undermine confidence, or by tariff delays, which might boost confidence.
The British pound has recently outperformed but GBP strength could be due for a pause with the GBP/USD recovery still contained to the cluster of resistance levels between 1.2486 and 1.2659.
Aussie maintains gains, AUD/EUR outperforms
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 17 – 22 February
All times AEDT
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
