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Australian Dollar Research Report

Published: Tuesday 01 December 2015

No surprises from this morning’s RBA meeting, they elected to maintain the official interest rate at 2% - the 7th consecutive month that rates have been held at this historic low. Last week RBA Governor Glenn Stevens told the market participants to “just chill out, come back and see what the data says”, suggesting that the RBA will wait until more data becomes available in the New Year before potentially adjusting their monetary policy. There’s still a split between analysts as to whether the RBA will remain in a neutral stance, or whether there’s need for another rate cut next year. At the moment the RBA see moderate growth in non-mining sector sections of the economy with business surveys showing a pickup in operating conditions and if that continues, coupled with improving employment data, it’s likely interest rates will hold at 2% through the first half of 2016. There’s still scope for easing if inflation slows and of course the Chinese economy is still showing signs of a slowdown, inflation eased further in November whilst imports and exports both dropped heavily. Consequently the RBA is still leaving the door open to further easing if data deteriorates in the first quarter of next year.
In terms of key events in the run up to Christmas, we’ve got Glenn Stevens speaking tomorrow (expect more neutral commentary from him). Thursday’s ECB meeting is a biggie – if they cut interest rates further it will boost risk appetite which is why we’re seeing Aussie and Kiwi strengthen in the run up to the announcement, that may continue into next week. The US Fed’s meeting on 16th will also be closely watched – an interest rate hike is priced in, but the accompanying statement will give the market clues as to when the next increase will be – a hawkish statement will prompt a round of risk aversion, with Aussie and Kiwi both selling off – conversely if the Fed don’t hike interest rates, again it’ll lead to massive bout of risk on, so stocks rallying, Aussie and Kiwi strengthening. In the midst of these significant meetings there’s a slew of Chinese, Australian and UK data, all which influence the GBPAUD rate. So December’s shaping up to be quite an eventful month as the year draws to a close.
Technically GBPAUD remains in the longer term uptrend that’s been in place since mid-2013 (see channel represented by T1 and T2 trend lines on the chart picture). It peaked in August and has since trended lower within a channel (see T4 and T5) with lower highs and lower lows. Momentum still favours a bit more downside and I think we’ll see it test support at 2.05 (T3) and possibly for the downtrend to resume further with a test of 2.00-2.02 (T5 trend line). On the topside resistance comes in at T4 (currently 2.1350 but falling). It’s fair to say that GBPAUD needs to remain trading above T1 trend line to avoid a significant reversal to the downside. 

With the RSI’s still point lower it suggests there’s a bit more of a fall on the cards in the short term, higher yielding currencies like the Aussie and Kiwi are benefitting as the potential interest rate cut from ECB on Thursday looms and the market will likely favour more risk on (benefitting Aussie and weighing on GBPAUD) if the ECB are very downbeat. It’ll be interesting to see how much of the ECB’s potential action is priced in however, and 2.05 on GBPAUD chart may prove to be adequate support for the time being. So buyers target 2.10 on an order on the topside and have a stop loss order positioned below the T3 trend line, or below T5 trend line to protect against larger move down to T1.

Fortunately things aren’t looking quite as bad as they did for you back in August, it’ll be worth selling some of your requirement here with the potential to sell another tranche if it breaks down through T3 support, and again if T5 support gives way. A break back above T4 resistance would herald a potential retest of the 2.23 August high.