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The main focus in Asian trade has been centered on the Australian Dollar after the RBA went ahead and raised the cash rate by 25bps to 4.00%.

While many had been expecting the decision, some were certainly caught off guard given the recent resurgence in uncertainty over the state of the global economy. Price action certainly reflected this disparity, as the single currency initially rallied quite sharply, before selling off back to pre-RBA levels. The central bank explained that its decision was mainly a product of sound local economic fundamentals, along with a broader recovery in the global economy, specifically citing strong Asian fundamentals.

Nevertheless, it is our opinion that the decision now exposes the RBA to moving too aggressively, with plenty of unresolved issues within the global economy at risk of escalating and potentially putting some intense pressure on the more restrictive Australian economy. The Australian Dollar actually is trading lower on the day, and the price action could be confirming our bias. Data out from Australia was mixed, with retail sales coming in stronger, but building approvals grossly disappointing. Elsewhere, Japanese unemployment was out and was well received after the rate came in lower than expected. Ex-Fed Chair Volcker was out talking up the buck a bit, after saying that the US Dollar’s role as the world’s reserve currency was not in jeopardy.

Looking ahead, Swiss GDP (0.4% expected) is due out at 6:45GMT, followed by UK construction PMI (48.9 expected) at 9:30GMT. The Eurozone CPI estimate (0.9% expected) and PPI (-1.1% expected) then cap things off at 10:00GMT.  All currencies are tracking lower against the buck on the day, with Kiwi getting hit the hardest. US equity futures and commodities trade relatively flat.
 

 

Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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