Vantage FX Market Wrap: Aussie hit by RBA rhetoric, Euro under 1.30 and headed lower

Le Tour has an Australian in the Yellow Jersey and GreenEDGE winning two stages in a row – what else is there you need to know?

Congratulations Simon Gerrens!

In truth for many fans of cycling that is probably the most important thing on a night where stocks were higher and then drifted lower, where New York Fed President Bill Dudley tried to say taper is data dependent but the market focussed on his comments that QE will end in 2014 and it was also a night where the RBA’s jaw boning and a bit of USD strength took the Aussie dollar lower.

[B]RBA says Aussie too high and room for rates cut[/B]

The Central Banks communication departments have certainly been schooling themselves recently because they are becoming very adept at getting their message across recently. Indeed uncommonly for the RBA they have in the past couple of months shortened their communique that follows the Board Meeting but in doing so pointed their rhetoric. Take for example yesterday when they said,

The Australian dollar has depreciated by around 10 per cent since early April, although it remains at a high level. It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy…

The Board also judged that the inflation outlook, as currently assessed, may provide some scope for further easing, should that be required to support demand.

No way to misconstrue that message we want the Aussie lower, we need it lower to rebalance the economy oh and by the way inflation gives us scope to cut which, wink wink, might help the Aussie fall also.

Aussie dollar traders heard the words loud and clear and the previously bid market which had been up all day turned tail after 2.30 from about 0.9219 trading down to just above important support at 0.9150 then back up through 0.9200 before falling to sit at 0.9142 this morning. I went mega short into the RBA meeting and squared up in front of 50 (cut 80% of the position) and then had a sell order in in front of the 200 hour moving average and the downtrend line you can see in the chart above. But AUD never got that high so I sold in the 80′s last night and am now short about 1.5 units targeting a move back to this week’s lows and then we’ll see.

But 0.8916 remains the next medium term target.

In other FX news Euro has broken down under 1.30 and looks biased toward a test of 1.2900 and ultimately the recent low around 1.2840. GBP has some near term support at 1.5080/90 and a break would be decisive while USDJPY has overhead resistance around current levels as you can see in the chart below.

[B]Bill Dudley is on message – Fed is set to taper.[/B]

Readers know that last week I said I didn’t trust the equity market rally but yesterday I never got to expand on this due to the computer nasties and internet problems that I was experiencing. I guess the key take away from last week was that as I said in my weekly newsletter, published Saturday but posted on the site today, the Fed rounded on itself by Week’s end with Jeremy Stein making it clear the taper caper is abut to occur.

Overnight New York Fed Governor William Dudley did the same – he said the extent and timing of the taper is data dependent but reiterated Stein’s words that it is upon us saying,

the FOMC anticipates that it would be appropriate to begin to moderate the pace of purchases later this year. Under such a scenario, subsequent reductions might occur in measured steps through the first half of next year, and an end to purchases around mid-2014. Under this scenario, at the time that asset purchases came to an end, the unemployment rate likely would be near 7 percent and the economy’s momentum strengthening, supporting further robust job gains in the future.

No doubt there – unless the data weakens and does so materially the Fed is about to begin the taper – Septaper it is.

So stocks weren’t so keen on these comments after rallying earlier on the factory orders data which printed +2.1% from 1.3% last. But I would note that the New York ISM came in at 47 from 54.4 last and the IDB/TIPP Economic optimism index in the US tanked falling to 47.1 from 49. At the close the Dow was down 0.29%, the Nasdaq off 0.04% and the S&P also barely moved down 1 point to 1614.

For the moment the S&P 500 is in a tight 1590-1620 range and only a break of this will see a material move.

In Europe the FTSE was almost unchanged down 0.06%, the DAX fell 0.91%, the CAC tumbled 0.65% with sotcks in Milan down a similar amount while stocks in Spain finished down 0.25%.


Crude rallied 1.68% to $99.64 Bbl, Gold fell 0.98% to $1244, silver was 1.34% lower at $19.32, Corn roared 2.52% higher, wheat rose 0.58% and Soybeans rose 0.18%. I continue to watch copper closely as it slipped 0.65% to $3.13 lb.

[B]Data [/B]

Wednesday sees the AiG performance of Services for Australia along with the trade data and Australian retail sales. In China the non-manufacturing PMI is out both official and HSBC indices. Then its Markit Services PMI’s for Europe and the UK and the ADP Private employment survey is also out in the US along with Jobless claims which are out a day early because of the July 4 holiday in the US on Thursday.