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AUD Consolidates Post-RBA Strength, USD Index Moderately Firmer

FOREX
  • Despite the initial greenback advance moderating on Tuesday, the USD index has risen 0.15%, reasserting itself above the 104.00 handle following Monday’s post ISM slide. Greenback strength was not enough to keep the Australian dollar from consolidating its post RBA strength. AUDUSD remains the strongest pair across G10, advancing 0.85% to a three-week high.
  • As a reminder, the RBA marginally pushed against consensus with a 25bps hike to the cash rate target, boosting rates to 4.10% and signalling that further policy tightening could follow.
  • In response, AUD surged to an intra-day peak of 0.6685 and despite the pullback throughout the first half of the European session, sits firmer against all others in G10 - helping to extend the streak of higher intraday lows into a fifth session against the USD.
  • Technically, price action marks an extension of the recovery from the May 31 low and resistance at the 50-day EMA, which intersects at 0.6653, has been cleared. This signals scope for a stronger recovery and opens 0.6710, May 16 high. Above here, the May 10 high at 0.6818 remains the key short-term resistance point.
  • Elsewhere, the Mexican Peso rose to a seven-year high against the dollar, with USDMXN once again testing below the bear trigger at 17.4207. A sustained break would confirm a resumption of the downtrend and opens the potential for a move to 17.0507, the Apr 29 2016 low.
  • Focus on Wednesday turns to RBA Governor Lowe who will speak at the Morgan Stanley Australia Summit, in Sydney where Q&A is expected. Additionally, Australian Q1 GDP Data will hit the wires. Attention will then turn to the Bank of Canada rate decision where analysts remain split whether the BOC will hike by 25bps or keep rates unchanged at 4.50%.
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