Is anyone else considering a long on the AUD/USD on the daily? I’ve read at a number of places the only way is a short on this considering the Governors statements on the aussie, however I can’t see this happening over the next week even with the OCR release on Tuesday.
My daily chart is screaming bullish divergence on both stochastic and RSI indicators, giving higher lows/lower highs, as attached.
Along with the technical’s, fundamentally I agree with most that Stevens will keep rates on hold come this Tuesday and that the market has already taken this in to account in the exchange rate. Meaning - if the OCR is kept on hold the affect will be minimal at best.
However, I disagree with most that Stevens will eventually drop rates next year. In fact, I think he will be more likely to be under pressure for his next rate change to be an increase.
The reasons being:
- real estate values are increasing at a reasonably fast rate as a result of the low rates, and the Governor expressed this concern in his last release.
- while unemployment is currently at about 5.6% (with most saying this is too high to justify an increase), I believe the trend will certainly start to head downwards as construction picks up - there has been a significant increase in building approvals - and once approvals turn into actual construction unemployment will fall.
- As property values increase and unemployment falls, prices rise eg inflation. With it currently at 2.2% (and by no means needing to worry about as of now) it will start to creep up. Remember the target is between 2 and 3% and any change in OCR takes time to effect the economy.
Sorry if I bored you all! But your feedback and thoughts would be good - to see if anyone else out there is on my wavelength! Remember - this is short term only - over the next week or two!
It is also interesting Stevens decided to have a go at the currency rate with the opportunity to have a bigger effect on Tuesday!