Westpac Scrubs February RBA Rate Cut Call, Now Tips May — Market Talk

The Australian dollar rose back above $0.65 on Thursday, recovering from losses in the previous session, driven by a hawkish stance from the Reserve Bank of Australia.

The minutes from the RBA’s November meeting revealed that the central bank remains cautious of inflationary pressures, noting that monetary policy should stay restrictive until inflation is on a clear path to its target.

However, the RBA emphasized that future policy adjustments will depend on incoming economic data.

Earlier in the week, the Aussie came under pressure from the US dollar as rising tensions in the Russia-Ukraine conflict boosted demand for safe-haven assets.

The US dollar also continued to be supported by expectations that Trump’s policies could reignite inflation, potentially limiting future interest rate cuts by the Federal Reserve.

Markets:

• Gold up $16.73 or 0.63% had $2648.75
• US 10-year yield 4.415%, +3.7 basis points
• US 2-year yield 4.320%, +4.9 basis points
• WTI crude oil down nine cents at $69.08
• S&P 500 unchanged
• NASDAQ fell -0.11%
• Russell 2000 unchanged
• Dow up 0.32%

The US dollar moved back higher after a few days of declines. The dollar index (DXY) rose 0.46%

• EUR, +0.52%
• JPY +0.53%
• GBP, +0.28%
• CHF +0.25%
• CAD +0.18%
• AUD +0.44%
• NZ +0.66%D

The economic calendar was void of any economic releases today. However, there was two Fed Governors who spoke. FIrst Feds Lisa Cook spoke and was ambidextrous in her economic and policy views. She said:

Later Fed's Michelle Bowman also spoke, but her comments were more hawkish:

The US treasury auctioned $16 billion of 20 year bonds and the usual 1 PM, and investors did not show up. The auction high yield came in 3.0 basis points above the WI level at the time of the auction. The Bid to cover was below the six-month average and the dealers were saddled with a whooping 22.6% of the auction versus the six-month average of 11.2%. UGLY.

Yields moved higher today help by a comments mostly from Bowman along with the poor auction results. A snapshot of the market shows:

• 2-year yield 4.305%, +3.4 basis points
• 5- year yield 4.273%, +2.5 basis points
• 10 year yield 4.406%, +2.7 basis points
• 30 year yield 4.591%, +2.6 basis points

In Europe, ECB's Stournaras stated that the ECB's monetary policy has successfully tamed inflation and expects it to converge to the 2% target by early 2025. He emphasized the need for the ECB to avoid an inflation undershoot as conditions evolve. Stournaras noted that interest rates are likely to remain restrictive for an extended period, but sees given persistent downside risks to Eurozone growth (so why keep rates restrictive?).

Technically speaking:

EURUSD: The EURUSD started the day with a modest extension higher that took the price to the high of a swing area target at 1.06097. The price also got closer to its falling 200-hour moving average. That moving average currently comes in 1.05958. The subsequent fall to the price below its 100 hour moving average at 1.05617. A correction after the break tried to extend back above that moving average level, but quickly reversed. That push the pair back down toward the low from last Friday's trade at 1.04956. The low price reach 1.0506 which was good enough for a new low for the day and week, but momentum cannot be sustained in the price bounced back higher into the close. The current price is trading at 1.0534. That is below the 100-hour moving average of 1.05617, but above the low price from last Friday and lowest level for the year (going back to October 2023).

USDJPY: The USDJPY higher in the Asian session and in the process extended above its 100 hour moving average currently at 155.00. The high price extended to 155.88 before rotating back to the downside and to the 100 hour moving average. Support buyers leaned against that level and pushed the price modestly off of the key moving average level at 155.40 currently. Going in the new day, the 100 hour moving average will be a key barometer. Stay above that level (at 155.00) and the buyers are in control. Move below and then below the 200 hour moving average of 154.697, and the sellers take more control in the short term.

GBPUSD: The GBPUSD moved higher earlier in the day and tested the high price from last Friday's trade near 1.2719. The high price today reached 1.2714 and found one sellers. The subsequent fall took the price below its 100 hour moving average of 1.2657 where the price has remained into the close. That moving average will be the short-term bias defining level for both the buyers and sellers. Stay below is more bearish. Move above is more bullish at least in the short term. On the downside, the low price yesterday stalled near 1.2612. The low price from last Friday reached 1.2596. Move below those levels opens the door for further selling.

AUDUSD The AUDUSD moved higher in the early Asian session and in the process extended above its falling 200 hour moving average:. However, momentum could not be sustained the price spent the US session moving down to a new wall at and technical target at its 100 hour moving average. Support buyers leaned against the level and bounced modestly into the end of day. The 100 hour moving average comes in at 0.6488. Moving below that level and staying below that level in the new trading day would be more bearish. Conversely, staying above and extending above the falling 200 hour moving average (currently at 0.65124) would give the buyers some added confidence.

Good fortune with your trading.

Headlines:

• Dollar holds firmer in European morning trade
• USDJPY Technical Analysis – The JPY remains the weakest among the majors
• S&P 500 Technical Analysis – The path of least resistance remains to the upside
• ECB's de Guindos: Current low growth environment has more to do with structural policy
• ECB sounds warning on "bubble" in AI stocks in latest financial stability review
• UK October CPI +2.3% vs +2.2% y/y expected
• Eurozone negotiated wage growth seen accelerating in Q3
• Germany October PPI +0.2% vs +0.2% m/m expected
• US MBA mortgage applications w.e. 15 November +1.7% vs +0.5% prior
• Economists see Trump tariffs to cut China GDP by around 0.5% to 0.9% next year
• Xi calls on Scholz to reconcile issue of EU tariffs on Chinese EVs

Markets:

• USD leads, JPY lags on the day
• European equities higher; S&P 500 futures up 0.2%
• US 10-year yields up 5.1 bps to 4.429%
• Gold down 0.1% to $2,628.43
• WTI crude up 0.5% to $69.76
• Bitcoin up 1.4% to $93,583

The dollar is starting to perk up again in trading today, following a bit of a breather in the past two days.

There wasn't much to trigger the dollar gains as traders just fell back to the post-election mood in the European morning session. USD/JPY was an early mover, gaining to around 155.20 in the handover from Asia before extending gains to around 155.80 currently.

That comes as bond yields are also tracking higher on the day. And it wasn't long before the dollar caught stronger bids across the board.

EUR/USD moved down from 1.0580 to 1.0550 while GBP/USD is pulled lower from 1.2700 after a hotter UK CPI report to 1.2665 currently.

Elsewhere, USD/CAD is back up by 0.3% to near 1.4000 while AUD/USD is down 0.5% to test the 0.6500 mark once more.

Looking to broader markets, equities are cautiously higher with watchful eyes on Nvidia's earnings after the close. Meanwhile, gold is marginally lower as the dollar and higher yields are keeping the rebound this week in check for a bit.

Besides that, Bitcoin is also seeing renewed bids amid the return to the post-election mood, at least for now. The cryptocurrency is seen up over 1% above $93,500.

After a bit of a pause in the last few days, the dollar is starting to flex its muscles once again. The greenback is sitting atop the major currencies bloc, now extending gains across the board on the day. USD/JPY already traded a little higher earlier but now other dollar pairs are catching up. EUR/USD is currently seen down by 0.4% to 1.0556:

EUR/USD hourly chart

The pair did break below its 100-hour moving average (red line) yesterday but it owed to risk-off flows, arguably driven by geopolitical headlines. That reversed course later in the day but now, we're seeing steady flows to nudge the pair back below the key near-term level again.

Hold below that and sellers will reestablish a more bearish near-term bias in the pair. So, that's a key technical development to be mindful of.

Elsewhere, USD/JPY is now up 0.7% to 155.80 while AUD/USD is down 0.4% to 0.6510 on the day. The dollar is seen firming here as bond yields are also pushing higher. 10-year Treasury yields are now up over 4 bps on the day to 4.42% on the session.

Are we starting to swing back to the post-election momentum after catching a breather?

The Australian dollar climbed above $0.653 on Wednesday, marking its fourth straight session of gains, supported by a weaker US dollar and a hawkish outlook on Reserve Bank of Australia policy.

The greenback ran into some profit-taking in recent sessions following a strong rally, while investors awaited news on US President-elect Donald Trump’s pick for Treasury Secretary.

On the domestic front, minutes from the RBA's November policy meeting indicated that the central bank intends to maintain a restrictive monetary policy until it is confident that inflation is sustainably moving toward its target, while remaining vigilant about upside risks to inflation.

However, the RBA stressed that it is not ruling anything in or out regarding future policy adjustments.

Currently, markets are pricing in a 37% chance of an RBA rate cut in February, and a 58% probability by April.

A 25 basis point reduction to the 4.35% cash rate is not fully priced in until May.

And that comes after a key test of the 1.0500 mark last week, with the importance of the level underlined here. The bounce this week sees the pair nudge up closer to 1.0600 but is also pausing a little since overnight trading. That coincides with the 23.6 Fib retracement level of the swing lower this month, also seen at the figure level.

EUR/USD daily chart

Besides that, offers layered at the 1.0600 mark are also in play for now and that is keeping the bounce in check. Looking to the near-term chart though:

EUR/USD hourly chart

We can more clearly see how the dollar momentum has stalled. That considering price action has now moved back above its 100-hour moving average (red line). As such, the near-term bias is now more neutral with price holding above that but below its 200-hour moving average (blue line). The latter is seen at 1.0633 currently. So, there is some slight room for price to extend higher before any threat to fully reversing the selling momentum.

As such, sellers i.e. dollar bulls will have a clear near-term level to defend in the sessions ahead to keep the post-election momentum.

This is a similar state to other dollar pairs, including GBP/USD, USD/CHF, USD/CAD, AUD/USD, and NZD/USD. All are seeing their price action keep in between the respective near-term levels as outlined in EUR/USD above as well.

That points to a pause in the dollar rally as traders catch their breath following the post-election run. We're now in the period of reassessing that with Treasury yields also stalling following the recent upside. The best gauge in making sense of these momentum shifts will be to look at the charts as per the above.