Record Trade Surplus to Curb AUD Weakness; RSI Divergence Persists

Talking Points:

Record Australia Trade Surplus to Curb AUD/USD Weakness; RSI Divergence Persists.

USD/JPY Snaps Back Following Failed Test of Feb Low (111.59); More Fed Rhetoric on Tap.

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AUD/USD Daily

AUD/USD Daily Chart

Chart – Created Using Trading View

  • The Australian dollar pares a allege following a better-than-expected 4Q Gross Domestic Product (GDP) report, with AUD/USD during risk of fluctuating a decrease from progressing this week as it threatens near-term support around 0.7650 (38.2% retracement); disaster to transparent a 0.7730 (61.8% retracement) jump accompanied by a ongoing dissimilarity in a Relative Strength Index (RSI) suggests a span is on a fork of a incomparable pierce generally as a span breaks down from a near-term wedge/triangle formation.
  • Nevertheless, a serve alleviation in a Balance of Payments (BoP) might extent a downside risk for a Australian dollar as a segment is expected to strike a record trade over-abundance in , and a certain enlargement might keep a Reserve Bank of Australia (RBA) on a sidelines as a subsequent seductiveness rate preference on Mar 7 as a executive bank anticipates ‘economic enlargement to be around 3 percent over a subsequent integrate of years.’
  • However, some-more of a same from Governor Philip Lowe and Co. might do small to boost a seductiveness of a Australian dollar as a RBA appears to be in no rush to lift a executive money rate off of a record-low, and a executive bank might continue to tame expectations for a rate-hike with ‘the arise in underlying acceleration expected to be a bit some-more gradual.’
  • As a result, a tighten subsequent 0.7650 (38.2% retracement) might open adult a downside targets forward of a RBA meeting, with a subsequent segment of seductiveness entrance in around 0.7590 (100% expansion) to 0.7600 (23.6% retracement) followed by 0.7530 (38.2% expansion).

USD/JPY Daily

USD/JPY Daily Chart

Chart – Created Using Trading View

  • USD/JPY looks staid for a incomparable liberation after unwell to exam a Feb low (111.59), and some-more uninformed tongue entrance of a Federal Reserve might fuel a near-term allege in a sell rate as Fed Fund Futures now cost a larger than 60% luck for a rate-hike in March; it seems as yet new comments from New York Fed President William Dudley and San Francisco Fed President John Williams have stoked interest-rate expectations as officials see a some-more ‘compelling’ box to lift a benchmark seductiveness rate.
  • The diverging paths for financial process should continue to encourage a long-term bullish opinion for dollar-yen generally as St. Louis Fed President James Bullard anticipates a cabinet to blueprint a some-more minute exit plan in 2017, and talks of unloading a change piece might worsen a seductiveness of a greenback as a Federal Open Market Committee (FOMC) stays on march to normalize financial policy; in spin uninformed remarks from Fed Governor Lael Brainard, Fed Governor Jerome Powell, Fed Vice-Chair Stanley Fischer and Chair Janet Yellen might fuel a near-term allege in USD/JPY as executive bank officials boost their efforts to ready U.S. domicile and businesses for aloft borrowing-costs.
  • At a same time, a new sensitivity in a dollar-yen sell appears to be accompanied by a pickup in marketplace sentiment, with tellurian benchmark equity indices highlighting a identical behavior, though a Nikkei (JPN225) continues to loiter behind a vital counterparts as a DAX and SP500 pull to uninformed 2017 highs.
  • As a Nikkei fails to transparent a Jan high (19,698), USD/JPY might face range-bound conditions as it struggles to mangle above a Fibonacci overlie around 114.00 (23.6% retracement) to 114.30 (23.6% retracement), though a broader opinion stays constructive generally as a RSI preserves a bullish arrangement carried over from a prior year.

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— Written by David Song, Currency Analyst

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