WEEK 2

WHAT MOVED THE MARKET

RBA Monetary Policy Decision & Domestic Retail Sales
4th June

Why is the RBA Monetary Policy Decision important?

Any changes to interest rate or outlook by the RBA, including dovish or hawkish tone, will impact the value of the AUD. Therefore, rate decisions and the RBA Monetary Policy Statement are vital to gauge how the central bank will act in the future.

What happened last week?

The RBA, as widely expected, lowered its interest rate by 25bp to 1.25% from 1.50% interest rate. However, there was no explicit statement of any further rate cuts – although it does not imply the easing cycle is over either. The post reaction of the AUD, however, made a moderate gain. The RBA notes that it will continue to monitor developments in the labour market closely, as well as adjusting its monetary policy to support both economic growth and achieve the inflation target of 2%. Meanwhile, Aussie retail sales for April fell by 0.1% (vs. 0.2% gain expected), see Chart 1. This figure again reinforces that the RBA is not done cutting rates since lower consumer spending will negatively impact housing’s disposable income.

Chart 1: Australian Retail Sales fell by 0.1% in April, below the 0.2% increase expected

US Jobs Report (Avg Hrly Earnings, Non-Farm Employment Change, Unemployment Rate) 
7th June

Why is the US Jobs Report important?

US Jobs report, including Average Hourly Earnings, Non-Farm Employment Change, and Unemployment Rate, are important leading indicators of consumer spending. These figures are also a vital part in shaping the US Federal Reserve’s outlook about the US economy and whether the central bank should hike, maintain or lower interest rates.

What happened last week?

The Aussie strengthened moderately following disappointing US monthly employment figures, with only 75k new jobs being added in April (vs. expected 185k). The unemployment rate, however, remained steady at 3.6% due to a decline in the participation rate to 62.8%. In addition, wages growth was up by 0.2 m/m but this data was below market expectations. Therefore, these figures lifted the chances of the US Fed cutting interest rates – up by 75% for July according to CME FedWatch Group.

TECHNICAL ANALYSIS

EUR/USD

Figure 1: EUR/USD Daily Chart

EUR/USD has closed with a strong bullish momentum this week. In particular, this upward trend started on Monday (3rd June) after penetrating the 1.1221 resistance level and further reached to 1.1263 as a result, which has become a new high position for the past few weeks. As indicated by the MACD histogram, this substantial upward momentum might still likely to support the bullish trend. In addition to that, the movement of signal line and MACD line may imply a small potential in bearish crossover in the next few days. However, a small short-term correction to the downside is possible and emphasised by an overbought Stochastic RSI. Looking forward, the bullish trend may test the resistance at 1.1365 and followed by 1.1400 in upcoming weeks, the 1.1450 level is a potential target in the longer-term.

AUD/NZD

Figure 2: AUD/NZD Daily Chart

After a steep break on Wednesday (5th June), AUD/USD is now suffering in a strong dark cloud after a week upward momentum on 29th May. From short-term prospective, the potential in bouncing off is small and supported by the Stoch RSI, with the indication that sellers still play as a dominant role in the market. Additionally, the MACD histogram may imply the increasing likelihood of a potential future bearish trend. Looking forward, the downward momentum may possibly continue, and the 1.0470 support level might be tested in the next few days.

Key Economic Announcements for the week ahead