• AUD/USD continues to trade in the red as RBA’s minutes sound dovish. 
  • RBA members discussed additional easing to support jobs. 
  • The AU-US yield differential turns negative in a USD-positive manner. 

AUD/USD remains on the offer at three-week lows, with the minutes of the Reserve Bank of Australia’s October meeting supporting the case for additional easing in November.

Released at 00:30 GMT, the minutes said:

  • The Board discussed the case for additional monetary easing to support jobs and the overall economy. 
  • Members discussed the options of reducing the targets for the cash rate and the 3-year yield towards zero, without going negative, and buying government bonds further along the yield curve. 
  • With the economy opening up, members considered it reasonable to expect that further monetary easing would gain more traction than had been the case earlier.
  • A further easing would help to reduce financial stability risks by strengthening the economy and private sector balance sheets, thereby lowering the number of non-performing loans. 
  • The Board agreed to put more emphasis on actual, not forecast, inflation in its decision-making. 
  • Members indicated that they would also like to see more than just progress towards full employment before considering an increase in the cash rate.

According to most analysts, the additional stimulus is likely to be announced during the Nov. 3 policy meeting. The central bank is expected to cut the interest rate to a new record low of 0.1% from the current 0.25% and possibly boost bond purchases in the five to 10-year window. 

RBA Assistant Governor Kent noted early today that rates could move into negative territory in the case of further RBA easing. The Aussie-US 10-year yield differential has dropped into the negative territory for the first time since March. 

As such, the path of least resistance for the Aussie dollar appears to be on the downside. AUD/USD is currently trading at 0.7056, having hit a low of 0.7046 a few minutes ago. That was the lowest level since Sept. 28. The S&P 500 futures are currently reporting 0.5% gains. As such, demand for the safe-haven US dollar may weaken, helping AUD/USD avoid deeper losses for some time.

Technical levels

 

  • AUD/JPY fades bounce off intraday low of 74.30 after bearish RBA minutes.
  • RBA’s Kent says will not increase cash rate until actual inflation is sustainably in the 2-3% target range.
  • Risk sentiment recovers as US Senate Majority Leader McConnell cited votes on stimulus package during this week.
  • PBOC Interest Rate Decision, risk catalysts will offer immediate direction.

AUD/JPY wobbles around 74.50 after RBA released minutes of the recent monetary policy on early Tuesday. In doing so, the pair marks a seventh consecutive negative performance as traders in Tokyo settles during the initial hours of the market opening.

As per the minutes of the October meeting, “the board agreed to maintain highly accommodative policy settings as long as required.”

Read: RBA Minutes: Discussed the options of reducing the targets for the cash rate and the 3-year yield towards zero, without going negative

Earlier in the day, RBA Assistant Governor (Financial Markets) Christopher Kent joined the league of Governor Philip Lowe while marking his bearish bias. The policymaker cited economic pessimism and high unemployment levels as the main causes to favor further monetary easing.

Read: RBA’s Kent: Expansion of balance sheet adding monetary stimulus

With the bearish sentiment at the Aussie central bank, AUD/JPY ignores recently positive risk barometer, namely the S&P 500 Futures, up 0.60% to 3,442. While news feed seems mostly dead, US Congress members’ push for the coronavirus (COVID-19) stimulus likely to have helped the trading sentiment.

Recently, Senate Majority Leader Mitch McConnell struck an upbeat tone to have the much-awaited deal ready for the vote during the week. The comments seem to ignore the Republican-Democratic divide on many issues that have stopped the relief package since the start.

Other than the US stimulus, hopes of a soft Brexit, mainly due to the European Union’s (EU) refrain from leaving the negotiation table, also favor the recent shift in the market’s mood.

However, the COVID-19 woes stand tall to challenge the global economic recovery while the other key risk catalysts, like Brexit and US stimulus updates, suggest no clear outcome. As a result, the bears are likely to keep the reins due to its nature of portraying the risk tone

Looking forward, the Interest Rate decision by the People’s Bank of China (PBOC), up at 01:30 GMT, will be the next directive for the AUD/JPY prices. Bloomberg recently came out with the forecast, relying on the Chinese Securities General, while citing increasing odds of higher reverse repo operations by the Chinese central bank. Even so, major forecasts suggest no changes to 3.85% rate.

Technical analysis

Not only the failures to cross the 61.8% Fibonacci retracement of its June-August upside but bearish MACD conditions also direct AUD/JPY sellers to attack a four-month-old upward sloping trend line, at 74.32 now. Alternatively, an upside clearance of 61.8% Fibonacci retracement level, at 74.80, will find multiple barriers around 75.00 portrayed during the early-October.

 

The October Reserve Bank of Australia meeting minutes have provided some additional colour on the Board’s view of risks to the economy and the outlook for policy.

The statements are trickling through as follows:

RBA Minutes

Board agreed to maintain highly accommodative policy settings as long as required.

Members observed that the global economy was gradually recovering.

The continuation of the recovery was dependent on containment of the virus.

Continue to consider how additional monetary easing could support jobs.

Australian economy had experienced the largest peacetime economic contraction since the 1930s.

Members noted that the decline in output in the June quarter had been smaller than in most other countries and smaller than had been expected.

Recovery was underway in most of Australia.

The covid-19 outbreak in victoria and associated restrictions on activity had been having a major effect on the economy in that state.

Both unemployment and underemployment were expected to remain high for an extended period.

Recovery was likely to be slow and uneven, and inflation was expected to remain subdued for some time.

Addressing the high rate of unemployment an important national priority.

Board agreed to place more weight on actual, not forecast, inflation in its decision-making.

Australian banking system, with its strong capital and liquidity buffers, had remained resilient and was helping the economy traverse the current difficult period.

Bank stood ready to purchase government securities in the event of a recurrence of market dysfunction

Members recognised that the substantial, coordinated and unprecedented easing of fiscal and monetary policy in Australia was helping to sustain the economy.

Public sector balance sheets in Australia were strong, which allowed for the provision of continued support.

Members considered that fiscal and monetary support would be required for some time given the outlook for the economy and the prospect of high unemployment.

Board  discussed the case for additional monetary easing to support jobs and the overall economy.

Members noted that larger balance sheet expansions by other central banks relative to the reserve bank was contributing to lower sovereign yields in most other advanced economies.

Members discussed the implications of this for the Australian dollar exchange rate.

Members discussed the options of reducing the targets for the cash rate and the 3-year yield towards zero, without going negative, and buying government bonds further along the yield curve.

These options would have the effect of further easing financial conditions in Australia.

Members discussed the options of reducing the targets for the cash rate and the 3-year yield towards zero, without going negative.

In considering the case for further monetary measures, members discussed monetary policy developments abroad and their implications for financial conditions in Australia.

Discussed buying government bonds further along the yield curve.

Members noted that the larger balance sheet expansions by other central banks relative to the reserve bank was contributing to lower sovereign yields in most other advanced economies than in Australia.

Members discussed the implications of this for the Australian dollar exchange rate.

Options would have the effect of further easing financial conditions in Australia.

AUD/USD update

Prior to the Minutes, the Aussie was already under pressure following a trick of comments from

The RBA’s Assistant Governor (Financial Markets) Kent who give a speech at the IFR Australia DCM roundtable webinar and explained an easing bias at the board as follows: 

RBA Kent’s comments finally send AUD/USD through support

Subsequently, AUD slipped below intra-day support as seen in the following 150min chart:

The Minutes have not impacted the price of the currency, so far. 

AUD/USD sits at 0.7053 and unchanged over the event. 

Description of the RBA minutes

The minutes of the Reserve Bank of Australia meetings are published two weeks after the interest rate decision. The minutes give a full account of the policy discussion, including differences of view. They also record the votes of the individual members of the Committee. Generally speaking, if the RBA is hawkish about the inflationary outlook for the economy, then the markets see a higher possibility of a rate increase, and that is positive for the AUD.

  • GBP/USD consolidates losses from 1.3025 while bouncing off 1.2936.
  • Confluence of 200-HMA, two-day-old ascending trend line challenges the pullback moves.
  • 1.2863 can offer immediate support ahead of the monthly low.

GBP/USD picks up bids near 1.2950 as traders in Tokyo begin Tuesday’s work. The pair broke an ascending trend line from Friday the previous day while also declining below 200-HMA.

With the RSI conditions not flashing any overbought/oversold signals, the quote can extend the latest recovery moves towards the key 1.2970 resistance confluence.

However, any further upside will be probed by the 1.3000 and Monday’s top near 1.3025. Also acting as the resistance is the one-week-long descending trend line, currently near 1.3035.

Meanwhile, the pair’s downside break of the latest low near 1.2935 can direct GBP/USD bears toward the 1.2900 threshold ahead of making them combat the 1.2863 horizontal support comprising lows marked on Wednesday and Friday.

If at all the sellers remain dominant past-1.2863, the monthly low near 1.2820 will become their favorite.

GBP/USD hourly chart

Trend: Bearish

 

  • Spread between 10-year UST and AGB shrinks off-late, currently around 0.027%.
  • AUD/USD battles an ascending trend line from June 15 after failing to bounce off 100-day SMA.

With the recently receding rate differentials between the 10-year government bond yields of Australia and the US, AUD/USD bears are attacking a four-month-old support line, while declines to 0.7050, during the early Asian trading on Tuesday.

Although the pair’s latest weakness could be attributed to its failures in crossing the 100-day SMA level of 0.7100, Kyle Rodda from the IG cites the diminishing difference between the 10-year Treasury yields of the US Treasury (UST) and the Australian Government Bonds (AGB) to weigh on the AUD/USD prices.

Currently, the 10-year US Treasury yields seesaw around 0.77% whereas its Aussie counterpart stays depressed near 0.750%.

With the bearish MACD joining the aforementioned downbeat catalysts, AUD/USD is likely to revisit the September month’s low of 0.7004 on the sustained downside below the said support line, at 0.7054 now.

Meanwhile, buyers are less likely to enter unless the pair successfully crosses the 100-day SMA level of 0.7101, which in turn will eye a falling trend line from the September 01, currently around 0.7200.

Traders await RBA minutes for fresh impulse while keeping the bearish bias.

Read: When are the RBA minutes and how might they affect AUD/USD?

AUD/USD daily chart

Trend: Bearish

 

The Reserve Bank of Australia’s Dr. Chris Kent has been speaking with comments trickling through.

RBA’s Kent: Expansion of balance sheet adding monetary stimulus

The latest round of comments has been more prominent in terms of the currency market due to the easing bias and rhetoric.

Dr Kent’s comments were eagerly watched after Thursday’s game-changing speech by governor Phil Lowe.

The market has been leaning more to the downside following Lowe’s comments when he said more easing would be required to support the economy while dropping a strong hint that the central bank could begin buying long term government bonds

Meanwhile, in the latest round of comments, Kent has confirmed that there is some room to cut cash rate further, although he said that they cannot speculate on details of easing.

However, he said that one option is to buy longer-dated bonds, while they would bond be regular and aimed to bring down yields.

He stressed that the board is considering case for further easing although explained that the RBA has not conducted a formal policy framework review.

AUD/USD technical analysis

 

More to come…

Meanwhile, the market is getting set for the next major event for AUD today:

When are the RBA minutes and how might they affect AUD/USD?

 

  • WTI remains pressured after stepping back from the resistance line of a short-term triangle.
  • 50-bar SMA offers immediate support, 200-bar SMA adds to the downside filter.
  • A clear break of $42.10 becomes necessary to convince buyers.

WTI fails to keep the late-US session bounce off $40.79 while declining from $41.03 to $40.90 during the early Tuesday morning in Asia. In doing so, the energy benchmark keeps an ascending triangle formation established since October 02 while taking the rest on the 50-bar SMA in the meantime.

Considering the normal RSI conditions, the oil sellers are less likely to look for entries unless witness a break of $40.75 immediate support, comprising 50-bar SMA.

However, the support line of the mentioned triangle and 200-bar SMA, respectively around $40.20 and $39.70, will act as tough nuts to crack for the WTI bears.

On the flip side, the upper line of the triangle, at $41.47 now, won’t be enough to recall the bulls as September 04 high near $42.10 challenges the black gold’s further upside.

Should the quote rises beyond $42.10, the September month’s high of $43.55, followed by the August month’s peak surrounding $43.85, will be in the spotlight.

WTI four-hour chart

Trend: Further weakness expected

 

  • AUD/NZD is offering a case for both the bulls and the bears.
  • The daily resistance is a keen target, but eyes are on weekly support. 

The price of AUD/NZD is testing a long term support which is expected to hold. However, if it does not, the downside will be in focus towards 1.0630 ahead of 1.04 as a long term target. 

Bulls, on the other hand, are seeking a test of the daily resistance located in the 1.0760s.

The following is a top-down analysis that illustrates the market structure and the aforementioned target areas from both a bullish and bearish perspective.

Monthly chart

As can be seen, the price is supported at a critical level.

If the support gives, then the focus will be on the downside towards the 1.04 area. 

Weekly chart

The weekly chart shows that the price is trading within a bearish impulse which will have more legs on it if the monthly support is broken.

If support holds, then the focus will be on the upside.

Daily chart

On the other hand, if the support holds and the resistance of the early October structure also holds, then the bears could be in with a discount. 

1.0630 could be the next stop, however, and offer bulls a discount in targeting the aforementioned daily resistance. 

  • AUD/NZD is offering a case for both the bulls and the bears.
  • The daily resistance is a keen target, but eyes are on weekly support. 

The price of AUD/NZD is testing a long term support which is expected to hold. However, if it does not, the downside will be in focus towards 1.0630 ahead of 1.04 as a long term target. 

Bulls, on the other hand, are seeking a test of the daily resistance located in the 1.0760s.

The following is a top-down analysis that illustrates the market structure and the aforementioned target areas from both a bullish and bearish perspective.

Monthly chart

As can be seen, the price is supported at a critical level.

If the support gives, then the focus will be on the downside towards the 1.04 area. 

Weekly chart

The weekly chart shows that the price is trading within a bearish impulse which will have more legs on it if the monthly support is broken.

If support holds, then the focus will be on the upside.

Daily chart

On the other hand, if the support holds and the resistance of the early October structure also holds, then the bears could be in with a discount. 

1.0630 could be the next stop, however, and offer bulls a discount in targeting the aforementioned daily resistance. 

  • Gold struggles to keep recovery moves from $1,900.67.
  • Risks dwindle amid US stimulus deadlock, virus woes and Brexit pessimism.
  • Second-tier data, risk factors to entertain the bullion traders.

Gold prices fade uptick to $1,905.03, currently around $1,904.14, during the initial Asian session on Tuesday. The yellow metal managed to cheer the US dollar weakness, before stepping back from $1,918.58, the previous day. The reason for the quote’s recent weakness could be traced from the receding odds of any coronavirus (COVID-19) stimulus from the US. Also weighing the trading sentiment could be the lack of COVID-19 vaccine and no signs of fresh Brexit talks.

Bulls remain challenged, bears need fresh power…

Although risk-off mood directs the global traders toward the US dollar, which indirectly favors the gold sellers, ingrained weakness concerning the US economic and political issues probe the greenback bulls. As a result, gold traders are waiting for clear direction while respecting the US dollar moves in the meantime.

Among the challenges faced by America, talks concerning the COVID-19 aid package becomes the key hurdle for now. Even if Republicans have finally shown readiness to go big on the amount, Democrats are finding it difficult to have an agreement for voting during this week, as suggested by the Senate Leader Mitch McConnell. Also probing the market optimism is the upcoming US presidential elections, in November, as well as a lack of vaccine to cure the deadly virus.

Not only the US but the global scientists are also struggling to find the vaccine for the pandemic while trials by the key players have taken a halt a few days back.

Brexit pessimism also remains on the table despite the European Union’s (EU) readiness to talk. The reason could be traced from the UK’s refrain from respecting the bloc’s intentions unless showing a clear sign to overcome important issues like the level playing field, governance and fisheries.

Sino-American and the China-Aussie tussles are also playing their roles to heavy the risks whereas chatters concerning Taiwan and Hong Kong join the line as well.

Amid these plays, Wall Street summed up the Monday’s trading on a negative side but the US 10-year Treasury yields closed in positive around 0.77% at the end of the North American session. Currently, S&P 500 Futures rise 0.15% to 3,438 after five days of consecutive declines.

Looking forward, minutes of the Reserve Bank of Australia’s (RBA) latest monetary policy and interest rate decision by the People’s Bank of China (PBOC) can offer immediate moves to gold prices. Though, risk updates will be the key to follow for near-term direction.

Technical analysis

Unless breaking an ascending trend line from September 28, at $1,902 now, followed by the $1,900 threshold, sellers are less likely to eye the monthly bottom surrounding $1,873.