Aussie Shrugs RBA Hike, Yen Turning Softer

Aussie is trading in tight range after RBA delivered the 50bps rate hike as expected, and maintained tightening bias. Euro is currently the stronger one for the day, followed by Sterling. On the other hand, Yen is under some selling pressure together with Dollar. The development suggests that risk markets might be ready for a recovery as the US is back for holiday.

Technically, 136.99 temporary top in USD/JPY will be a focus and break there will resume larger up trend. Such development could help pull other Yen crosses higher. In particular, if that happens, EUR/JPY and GBP/JPY might follow by breaking through 144.26 and 168.67 resistance levels respectively.

In Asia, at the time of writing, Nikkei is up 0.89%. Hong Kong HSI is up 0.65%. China Shanghai SSE is down -0.12%. Singapore Strait Times is down -0.46%. Japan 10-year JGB yield is down -0.0007 at 0.225.

RBA hikes 50bps to 1.35%, more to come

RBA raised cash rate target by 50bps to 1.35% as widely expected.  It also increased the interest rate on Exchange Settlement balances by 50bps to 1.25%.

It also maintains tightening bias. “The Board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead,” it said. The timing and size of future hikes will be guided by the incoming data and assessment of the outlook for inflation and the labor market.

RBA also pointed to “behaviour of household spending” as one source of domestic “ongoing uncertainty”. Global outlook “remains clouded” by war in Ukraine and the impacts of energy and agriculture prices. There are also ongoing uncertainties related to COVID, especially in China.

Also from Australia, AiG Performance of Construction dropped sharply form 50.4 to 46.2 in June.

New Zealand business confidence dropped to -65 in Q2

New Zealand NZIER Business Confidence dropped from -40 to -65 in Q2. A net 65% of firms surveyed expected general business conditions to deteriorate. That’s the weakest level since Q1 2020.

NZIER said: “For the June quarter, firms saw activity in their own business remaining subdued. Besides the continued uncertainty over the COVID-19 outbreak, businesses are also grappling with the intensification of cost pressures and higher interest rates.”

China Caixin PMI services rose to 54.5 in Jun, composite rose to 55.3

China Caixin PMI Services rose from 41.4 to 54.5 in June, above expectation of 49.0. That’s the highest level since July 2021, signaling strongest upturn in business activity for 11 months. There were renewed increase in overall sales, despite slight drop in export orders. Inflationary pressures weakened. PMI Composite rose from 42.2 to 55.3.

Wang Zhe, Senior Economist at Caixin Insight Group said: “Overall, regional Covid outbreaks were put under control and restrictions were loosened in June, facilitating a gradual recovery in business operations. The supply side was the first to reflect improvements in production and logistics, while it will take more time to restore demand. The rebound in the services sector, which was hit harder by Covid outbreaks, was stronger than that of the manufacturing sector. Job creation lagged behind these positive developments, with the gauge for employment remaining in contractionary territory. Manufacturers still faced high cost pressure and profit challenges.”

Looking ahead

France industrial production and Eurozone PMI services final will be released in European session. UK will also release PMI services final. Later in the day, Canada building permits and US factory orders will be featured.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6810; (P) 0.6849; (R1) 0.6905; More…

AUD/USD is staying in range of 0.6762/6918 and intraday bias remains neutral first. Strong support could still be seen from 0.6756/60 cluster support to complete the whole correction from 0.8006, and bring rebound. On the upside, above 0.6918 resistance will indicate short term bottoming, and turn bias back to the upside for 0.7282 resistance. However, sustained break of 0.6756/60 will carry larger bearish implication and target 0.6461 fibonacci level next.

In the bigger picture, price actions from 0.8006 are seen as a corrective pattern to rise from 0.5506 (2020 low). Strong support is expected from 50% retracement of 0.5506 to 0.8006 at 0.6756 to complete the pattern. This coincides with 100% projection of 0.8006 to 0.7105 from 0.7660 at 0.6760. However firm break of 0.6756/60 will raise the chance of bearish reversal and target 61.8% retracement at 0.6461.

Economic Indicators Update