AUD / USD – Contracting Building Approvals fail to add on RBA hopes

The Australian Bureau of Statistics released the number of Home-Building permits in December earlier this morning. M/M Building Approvals fell by 4.4% versus an expectation of 1.0% growth. Y/Y figures is positive at 9.3%, but is still more than 1/3 lower than analysts forecast of 14.9%. AUD/USD fell marginally on the news, but quickly recovered and is trading higher now, approaching 1.044 resistance.

Hourly Chart

A large part of the rally in AUD/USD is due to decreasing expectations on RBA. To make it clear, a dip in Building Approvals is a bearish economic news, with Australian equities index ASX trading 0.28% lower while other Asian counterpart such as Nikkei and Hang Seng both showing gains. Overnight Index Swaps are currently pricing an 18% chance of a 25bps cut tomorrow, a stark decrease from Jan when prices suggested a 30-40% chance of rate cuts. Only 2 of 16 economists polled by Wall Street Journal believe RBA would cut interest tomorrow.

Weekly Chart

Weekly Chart shows bullish momentum being halted by 1.06, with rising trendline broken. Though there appears to be an interim support along 1.04, 1.03 may provide stronger support should 1.04 be broken. A further break of 1.04 opens up 0.97 as the ultimate target for bears trading the weekly chart. Stochastic indicator also hint at a bearish turnaround with Signal Line and Stoch line crossing after entering the Oversold region. Beyond pure technicals, a drastic move towards the 0.97 target requires not just deep RBA rate cuts, but also a meltdown in global economic confidence. With China’s “hard landing” turning out to be much softer than expected, it could take some time to see a truly bearish scenario materialized within the next few months – increasing the possibility of 1.03 holding.

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AUD / USD – Trying to Stay Above 1.04

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