Tag Archives: AUDUSD

RBA Minutes of the December Monetary Policy Meeting

Members participating

Philip Lowe (Governor and Chair), Guy Debelle (Deputy Governor), Mark Barnaba AM, Wendy Craik AM, Ian Harper AO, Steven Kennedy PSM, Allan Moss AO, Carol Schwartz AO, Catherine Tanna

Others participating

Luci Ellis (Assistant Governor, Economic), Christopher Kent (Assistant Governor, Financial Markets), Tony Richards (Head, Payments Policy Department)

Anthony Dickman (Secretary), Ellis Connolly (Deputy Secretary), Alexandra Heath (Head, International Department), Bradley Jones (Head, Economic Analysis Department), Marion Kohler (Head, Domestic Markets Department)

Michele Bullock (Assistant Governor, Financial System), for the paper on the future of money

International economic developments

Members commenced their discussion of the global economy by noting that some potential COVID-19 vaccines were reported as having a high efficacy rate and were nearing approval for emergency use in the United States, United Kingdom and the European Union. It was noted that should these vaccines prove effective in practice and be made widely available on a timely basis, this would reduce downside risks to the medium-term economic outlook.

Nevertheless, infections had risen notably in a number of large advanced economies since September. Hospitalisation rates had exceeded earlier peaks in many countries, and stress was being placed on some healthcare systems. Many governments had responded by tightening containment measures, including the re-introduction of full or partial lockdowns. This had contributed to a welcome reduction in the flow of new cases in Europe in recent weeks, while in the United States, where restrictions had been less stringent, numbers of new cases were yet to slow appreciably.

Members noted that global economic activity had bounced back faster than anticipated in the September quarter, but the tightening in containment measures in the December quarter had resulted in a loss of economic momentum. In Europe, some economies were now expected to contract in the December quarter. Members observed that, once most restrictions were lifted, the level of GDP in many economies had tended to recover to around 4 to 5 per cent below pre-pandemic levels. This sizeable shortfall reflected the remaining restrictions on some services industries as well as risk aversion and cost-cutting by firms, which had weighed on employment and investment.

In Asia, differences in the industry composition of economies explained some of the variation in recovery paths. Economies with large automotive industries had experienced a slower recovery in industrial production, compared with those whose exports of technology and electronics are more important. It was also noted that the composition of fiscal stimulus in China had contributed to the very strong rebound in industrial production there.

Members noted that housing prices in a number of advanced economies had been surprisingly resilient this year, and some economies had seen a notable increase in housing prices in recent months. New Zealand had experienced strong ongoing housing demand from population growth, expatriate buying interest and an earlier easing in lending standards. By comparison, these factors had been less relevant in Australia and, partly as a result, the increase in housing prices in Australia this year had been considerably smaller than in a number of other advanced economies.

Members discussed how global developments had affected Australian trade since the pandemic. Early in the pandemic, weak external demand had depressed exports, while supply disruptions had affected imports (as they had in a number of economies). The imposition by Chinese authorities of import bans and other obstacles to imports of some Australian products, particularly agricultural products and, more recently, coal, had also had an effect. However, it was also noted that Chinese demand for Australian iron ore exports remained firm.

Domestic economic developments

Turning to the domestic economy, members noted that the recovery had established reasonable momentum, aided by the lifting of restrictions in Victoria. Expectations for GDP growth in the September and December quarters had been upgraded over the preceding month, and employment had also recovered faster than anticipated. At the same time, members noted that there continued to be a significant amount of spare capacity in the labour market and the economy more generally. The recovery was still expected to be uneven and protracted, with inflation remaining low. Substantial policy support would therefore be required for a considerable period.

In reviewing recent data, members noted that the rebound in household consumption was well under way and evolving broadly as expected following a record contraction in the June quarter. A bounce-back in spending in Victoria had assisted this, consistent with more consumption possibilities opening up in that state. Indicators such as retail trade, new car sales and payments information indicated that the recovery in consumption would continue in the December quarter; high household savings was also likely to support consumption in the period ahead. At the same time, the ability of households to consume some services would continue to be constrained by pandemic-related restrictions. By the end of the year the level of consumption was still expected to be lower than a year earlier, in line with the experience of some other economies.

Members noted that conditions in the domestic housing market were improving but uneven. Regional housing prices had increased by more than those in capital cities since the onset of the pandemic. There was also considerable variation in changes in housing prices across the capital cities, with conditions in Sydney and Melbourne more subdued than elsewhere in the country. In addition, within Sydney and Melbourne in particular, conditions in the detached housing market were firmer than for higher-density markets. Overall, national housing prices had increased only a little since the outbreak of the pandemic.

Members agreed that an important factor in national housing market conditions had been the slowdown in population growth as a result of the closure of international borders; this had been more consequential in Australia than in many other economies. Members discussed how the decline in net overseas migration had affected conditions in the rental market in particular, with rents falling and rental vacancy rates in inner-city Sydney and Melbourne around their highest levels in many years. Rental vacancy rates were much lower in Perth, where growth in new supply had been relatively modest in recent years and international students accounted for a smaller share of rental housing demand.

Members noted that the recovery in the labour market was more advanced than expected, with employment having grown strongly in October. This was despite a tapering in the JobKeeper program and some restrictions on activity remaining in place in Melbourne during most of the month. Victoria accounted for around half of nationwide employment growth in October, in part because of the pick-up in employment in construction and manufacturing in that state as restrictions began to be eased. Related to the stronger employment outcomes, members also noted that the rebound in the participation rate had been surprisingly swift.

Despite these positive developments, members noted that the unemployment rate had ticked up in recent months and that broader measures of labour underutilisation remained high. Hours worked were around 4 per cent lower than before the pandemic, and many employed workers were still on reduced or zero hours. The recovery in employment and average hours worked for full-time workers had been much more subdued compared with those working part time. Members agreed that, on the whole, there was still a significant amount of spare capacity in the labour market and that this would remain a key policy challenge for some time.

A further indication of spare capacity in the labour market was low wages growth. Members noted that growth in the wage price index slowed to 0.1 per cent in the September quarter to be just 1.4 per cent in year-ended terms. This was the slowest wages growth in the two-decade history of the series. Over recent quarters, the slowdown in growth in wages set in individual agreements largely reflected wage freezes for many private sector employees and some, mostly temporary, wage reductions. The slowdown in award wages growth in the September quarter had been even more pronounced than in individual agreements, in part reflecting deferred increases for many awards. Members also observed that if new collective agreements (mostly enterprise bargaining agreements) were established at lower rates of growth than expiring agreements, this would place further downward pressure on wages growth. It was noted that a substantial tightening in the labour market would be required to lift wages growth and inflation outcomes over the medium term.

Members noted that non-mining business investment was expected to have declined further in the September quarter and the outlook remained weak. Surveys of businesses’ investment intentions indicated that expenditure on machinery and equipment and on non-residential construction would remain weak, although not as weak as expected a few months earlier; investment in machinery and equipment would have declined further in the absence of policy measures designed to encourage some firms to bring forward investment. Members discussed the risk that a prolonged period of weak capital investment could weigh on the economy’s productive capacity over time.

Members concluded their discussion of domestic economic conditions by noting that the unprecedented degree of fiscal and monetary policy stimulus since the outbreak of the pandemic had played a key role in supporting the economy. As part of the national fiscal response, state and territory governments had recently announced welcome additional increases in expenditure; this, combined with lower revenues, had seen the consolidated state and territory budget deficit for 2020/21 increase to around 5 per cent of output. The consolidated deficit across the Australian and state governments in 2020/21 was expected to be around 15 per cent of GDP, a substantial increase from 2019/20. Members agreed that national fiscal settings will provide significant support to the recovery in the period ahead.

International financial markets

Members observed that financial conditions were highly accommodative globally. News of progress in developing effective vaccines had boosted equity markets and had lowered credit risk premiums further during November, notwithstanding rising COVID-19 case numbers and tighter lockdown measures in many jurisdictions.

In the advanced economies, expectations for any further reductions in central banks’ policy rates had been scaled back, partly because of upward revisions to the economic outlook and partly because other policy tools were providing significant stimulus and could be scaled up if needed. At its most recent policy meeting, the US Federal Reserve had judged that immediate adjustments to the pace and composition of its asset purchases had not been necessary. The European Central Bank had signalled that it was likely to expand some of its programs at its upcoming meeting, but a further reduction in its negative policy rate was no longer anticipated by market participants. The Bank of England had announced an expansion of its asset purchase program in November and the Reserve Bank of New Zealand had introduced a program for providing long-term loans to banks. In contrast to previous months, market pricing had suggested that negative policy rates were unlikely to be adopted in either of these two economies.

Yields on long-term government bonds in the advanced economies had risen a little in response to the positive news on COVID-19 vaccines, but had remained at very low levels. Central bank bond buying programs had provided some offset to the effect on yields stemming from other influences, including the ongoing high level of government bond issuance. Members noted that, relative to GDP, the size of the Bank’s balance sheet was at the lower end of the range observed in other countries, although it was now rising steadily under the bond purchase program that had commenced in November.

Members noted that a range of asset prices had been supported by the more positive global outlook and the very accommodative stance of monetary policy. Spreads between corporate and government bond yields had narrowed further. Globally, equity prices had increased strongly following the vaccine developments, rising by at least 10 per cent in many cases, including in Australia. A reduction in uncertainty following the outcome of the US election, and better-than-expected earnings reports in advanced economies, had also supported equity prices.

Chinese government bond yields had increased and the Chinese renminbi had appreciated in recent months. Relatively higher interest rates and China’s recent inclusion in some global benchmark indices had encouraged continued inflows into Chinese bond markets. Also, Chinese authorities had continued to improve foreign access to these markets. Reflecting the better outlook for global growth and trade, many emerging market economies had experienced significant portfolio inflows and appreciating exchange rates.

The US dollar had depreciated during November in response to the improved medium-term outlook for global growth; on a trade-weighted basis it was a little below its level at the start of 2020. The same factors had supported commodity prices and seen the Australian dollar appreciate in November; on a trade-weighted basis the exchange rate had remained around 2 per cent below its peak in early September.

Domestic financial markets

Members noted that the most recent policy package had been working as expected. Money market rates had declined to be close to zero and the yield on the 3-year Australian Government bond had fallen to levels consistent with the Board’s target, aided by the Bank purchasing $5 billion of that bond in November. In addition, $19 billion of longer-dated government bonds had been purchased under the bond purchase program.

The bond purchase program had put downward pressure on bond yields and contributed to a lower exchange rate than otherwise. Yields on 10-year Australian Government Securities (AGS) had declined relative to 10-year government bond yields in other advanced countries in anticipation of the Bank’s bond purchase program. Since the announcement of the program, yields on 10-year AGS had remained at similar levels to those on 10-year US Treasury securities. The spread of semi-government bond yields relative to AGS had increased a little following the release of the state government budgets, but yields had remained at historically low levels. The markets for AGS and semi-government debt had continued to function smoothly.

Members observed that average outstanding interest rates on housing and business loans had declined to historic lows. Since the start of November, announcements of reductions in borrowing rates had largely been for fixed-rate housing loans as well as business loans under the Government’s Coronavirus Small and Medium Enterprises Guarantee Scheme. Some banks had also reduced rates on a range of deposit products.

Demand for housing finance had increased in recent months, particularly for loans to owner-occupiers, and credit to investors had stopped declining. Members noted that, in contrast, demand for business credit had remained weak and business credit had declined since May, unwinding the increase over March and April, when businesses had drawn on credit lines for precautionary reasons. Payments into offset and redraw accounts had remained high in October.

The future of money

Members considered a special paper on the future of money and changes in the way payments are made. They discussed the longer-term trend towards the use of electronic payment methods by households and the apparent acceleration in this trend as a result of the pandemic. Members noted that the shift from cash to electronic payments is further advanced in Australia than in a number of other countries. However, demand for cash as a store of value had continued to grow in Australia and most other advanced economies.

Members discussed different possible design features for a retail central bank digital currency (CBDC) and the associated public policy issues. They noted that there has been significant innovation in the Australian payments system in recent years, including the provision of real-time account-to-account payments that are available on a 24/7 basis. A retail CBDC might assist with some particular use cases, but it could fundamentally change the structure of the financial system and introduce new financial stability risks. It therefore did not appear that a public policy case for a retail CBDC currently existed in Australia. Members noted that there could be stronger arguments in favour of a wholesale CBDC and that it was important for the Bank to continue to conduct research in this area and monitor developments in other jurisdictions.

Considerations for monetary policy

In considering the policy decision, members observed that the global outlook remained uncertain. Infection rates had risen sharply in Europe and the United States and the recoveries in these economies had lost momentum or even reversed. However, the news about vaccines had been positive, which should support the recovery of the global economy. The recovery was also dependent on ongoing support from both fiscal and monetary policy. In labour markets in most countries, hours worked were noticeably below pre-pandemic levels. Inflation remained very low and below central bank targets.

In Australia, the economic recovery was under way and recent data had generally been better than expected. Consumer spending had risen as restrictions were eased, business and consumer confidence had lifted and housing markets had generally proved resilient. Employment had been recovering strongly and the peak in the unemployment rate was likely to be lower than the 8 per cent rate expected a month earlier. Nevertheless, the recovery was still expected to be uneven and protracted, and it remained dependent on significant policy support and favourable health outcomes. It would take some time for output to reach its pre-pandemic level and an extended period of high unemployment was in prospect. The high unemployment rate and excess capacity across the economy more broadly were expected to result in subdued wages growth and inflation over coming years. Given this environment, the Board viewed addressing the high rate of unemployment as an important national priority.

Following the significant policy changes made at the Board’s recent meetings, members decided to maintain the existing policy settings. Members agreed that the Board’s policy measures had lowered interest rates across the yield curve, which was assisting the recovery by: lowering financing costs for borrowers; contributing to a lower exchange rate than otherwise; and supporting asset prices and balance sheets. The Term Funding Facility (TFF) was also supporting the supply of credit to businesses. The Board’s decisions were complementary to the significant steps taken by governments in Australia to support jobs and economic growth.

Since the start of the year, the Bank’s balance sheet had increased by around $130 billion. Authorised deposit-taking institutions had drawn down $84 billion of low-cost funding through the TFF and had access to a further $105 billion under the facility. Over the preceding month, the Bank had purchased $19 billion of government bonds under the bond purchase program and a further $5 billion of AGS in support of the 3-year yield target. The Bank remained prepared to purchase bonds in whatever quantity required to achieve the 3-year yield target. Members noted that the Australian banking system, with its strong capital and liquidity buffers, had remained resilient and was helping the economy traverse the current difficult period.

Given the outlook for both employment and inflation, members acknowledged that monetary and fiscal support will be required for some time. The Board remains committed to not increasing the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. For this to occur, wages growth would have to be materially higher than recent levels. This would require significant gains in employment and a return to a tight labour market. Given the outlook, the Board does not expect to increase the cash rate for at least 3 years. The Board remains of the view that it would be appropriate to remove the yield target before the cash rate itself were increased.

Members agreed to keep the size of the bond purchase program under review. At its future meetings, the Board will closely monitor the effects of the bond purchases on the economy and on market functioning, as well as the evolving outlook for jobs and inflation. The Board is prepared to do more if necessary.

The decision

The Board reaffirmed the existing policy settings, namely:

  • a target for the cash rate of 0.1 per cent
  • an interest rate of zero on Exchange Settlement balances held by financial institutions at the Bank
  • a target of around 0.1 per cent for the yield on the 3-year Australian Government bond
  • the expanded Term Funding Facility to support credit to businesses, particularly small and medium-sized businesses, with an interest rate on new drawings of 0.1 per cent
  • the purchase of $100 billion of government bonds of maturities of around 5 to 10 years over the 6 months following the Board meeting on 3 November 2020.

Forex Technical analysis week: 17-21 July 2017

USDJPY Technical analysis July-19-2017

USDJPY is under selling pressure today and sellers now are in full control as the pair broke below the 50d MA and 100d MA and now it is targeting the 111.21 level, meanwhile USD is weak across the board.

AUDUSD Technical analysis July-12-2017

AUDUSD made an impressive rally the last days but now have reached overbought levels, meanwhile USD looks strong across the board, a profit taking looks possible.

EURUSD Technical analysis July-12-2017

EURUSD is under pressure after Yellen’s speech and broke all the supports just to hit the daily low at 1.1391 the strong support of 200h MA I will enter a long position as we expect the pair to rebound from that support and regain 1.14 level

EURUSD Technical analysis July-11-2017

EURUSD is making new yearly highs, the consolidation around 1.14 has ended with a break to the upside getting help from Donald Trump Jr. posts about email chain with Russian lawyer offer to provide information on Clinton. A close above 1.1465 will give bulls a chance to reach 1.15

GBPUSD Technical analysis July-11-2017

GBPUSD is trading higher today and has already made two attempts to break above the 100h MA. 1.2920 level looks like a strong resistance and we expect the pair to pullback.

USDJPY Technical analysis July-10-2017

The pair failed today to break above the May high at 114.36, it stopped at 114.29, but there is nothing to worry the longs as the pair holds above 114. So stay long as USDJPY is trading above 114, first resistance at 114.36 and then 114.95

GBPUSD Technical analysis July-07-2017

GBPUSD breaks below the 1.29 level after worst than expected manufacturing and industrial production data. Investors dump GB amid expectations that the UK economy could be headed for a slowdown and short term trend broke below the 200h MA

EURUSD Technical analysis July-04-2017

EURUSD is trading in narrow trading range just 41 pips from low to high as us markets are closed. EUR bullish momentum is still intact but we expect a minor pullback for later today

USDCAD Technical analysis June-28-2017

USDCAD is approaching again the daily lows at 1.2964, an early USD reaction earlier today ended just above 1.30. Stay short as long as the pair is trading below 1.2985. Remember that the CAD is often traded as a proxy for crude oil, so make sure that you are watching to what’s going on in that market. Today is Independence Day in USA, and that will work against volume in USDCAD, as the pair is heavily weighted towards North American trading

USDCAD Technical analysis June-28-2017

USDCAD is down 1.10% to lows that we haven’t seen since February 24. The pair has reached oversold level and the crude price is still under pressure, we expect a short recovery from that level.

EURUSD Technical analysis June-27-2017

EUR bulls are back in town breaking above the 1.13 level and bears are running away. I expect more buying as long as the pair hold above 1.13

EURUSD Technical analysis June-26-2017

There is something that we don’t like about the EUR today. The pair moved above last week high at 1.1212 and hit 1.1219, even the macro news was against USD like the Dallas Fed activity index which was lower than expectations, the pair failed to hold the gains and broke below the 1.12 level. The move today suggests that buyers are not very confident and a move lower looks possible.

EURUSD Technical analysis June-23-2017

Finally the pair after trading for 4 days in very narrow trading range (30-40 pips) managed to break emphatically above the 200h MA enhancing the long term bullish momentum for EUR

USDCAD  6-22-2017

Strong Canadian retail sales send the USDCAD to daily low at 1.3207 down more than 100 pips for the day. Meanwhile crude oil is trading 1.4% higher after 4 days of losses. Sellers are in full control of the situation here as better macro data increase the chance of a rate hike on July 12th by Bank of Canada.

GBPUSD  6-21-2017

It looks like the gbpusd found support at the 100d MA and that gave the buyers some confidence. We are not very sure if the rebound will last but i will give it a try targeting the area below intraday high around 1.2682

EURUSD Technical analysis June-20-2017

EURUSD short term outlook has turn negative as sellers took control and every rebound looks like an opportunity for entering short positions. Major support is the 50d MA at 1.1012

GBPUSD bearish momentum 6-20-2017

GBPUSD is under heavy selling pressure today and found support just at 1.2602 level. The pairs momentum turn bearish as it broke below the 100d MA and now the next support could be found in 1.2578 which is the 50% of the move up from March low. Stay short as long as the price trades below the 100d MA

EURUSD Technical analysis June-19-2017

EURUSD is trading in a narrow trading range but since last week the pair short term view looks bearish even that the long term picture is bright. We believe that as long as the pair is trading below 1.12 you should keep your short position, a break above 1.12 will give bulls a chance.



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USDJPY and AUDUSD Technical analysis

Technical analysis

USDJPY changes direction to bullish as it breaks below the 50h MA. The pair hit the daily high at 111.59 during the Draghi speech, but sellers took control and driving the pair to 111

AUDUSD hits fresh 3 month lows at 0.7439 the lowest level since January 12, it is the fourth daily decline in a row and the pair has reached oversold level, we expect a small rebound.

GBP still holds the bullish momentum and every pull back is a buy opportunity. Bulls will get a boost if the pair will regain the 1.29 level

GBPUSD Technical Analysis

GBPUSD Technical Analysis

GBPUSD spiked higher early today breaking the 50h and 100h MA and hit the daily high at 1.2255, and now retracing back, breaking below the 1.22 level. This is a nice entry point for longs as long the 100h MA support is on hold.


AUDUSD Technical Analysis

AUDUSD deploys positive momentum from 9th March low at 0.7487 and is close to break above the 0.76 level after the FOMC decision today. The 100 days MA offers the long term support and the 50h MA tested today and send the pair higher.


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AUDUSD Technical Analysis

AUDUSD Technical Analysis

AUDUSD is trying for second time to break above the 0.7500 on the day. The pair moved above that level in the morning session but could not sustain the momentum. The pair peak at 0.7513. The high just printed 0.7523. The 200 bar MA on the 4-hour chart is up ahead at 0.75173.

The price of the AUDUSD has not traded above this MA since November 10th. The 50 and 100 hour Moving Averages are crossing at 0.7472 an area where buyers are stepping in. Keep in mind that in December the pair is moving in only 100 pips narrow trading range and sooner or later will have a big move.

AUDUSD touching the lows

AUDUSD touching the lows

AUDUSD has moved to new lows in the last hour touching 0.7259.

The weaker than expected US Employment Cost index on Friday put an end to that break. In fact the price moved above the 200 hour MA for the first time since July 22. That did not last long.

Today, the price action has been up and down choppy, but down overall Economic releases later in Australia along with an interest rate decision by the RBA. will add volatility and risk.
On the downside, with the low from Friday at 0.7233 being the lowest level since 2009, a break below it should open the door for further down momentum. 0.7000, the next logical target for the pair.

On the upside we need to see a move above the 200 hour moving average (and staying above). If done the 0.73408 and 0.7366 levels become the next upside targets.