Daily Report: Aussie Soft after RBA Cut, Dollar Remains Firm ahead of ISM

Market Overview | Written by ActionForex.com | Sep 02 08 06:48 GMT |

Aussie remains soft after RBA cut rates for the first time in seven years as widely expected. The overnight cash rate is lowered by 25bps to 7.00%. There is no immediately selloff after the announcement as the statement is somewhat less dovish than expected and suggests that the next policy move will be data dependent. The statement said that the Board will continue to assess prospects for demand and inflation over the period ahead, and set monetary policy as needed to bring inflation back to the 2-3 per cent target over time." Nevertheless, there isn't anything that could spark a rebound neither and the Aussie remains pressured by broad based dollar strength.

The greenback, on the other hand, remains firm crude oil weakens following Gustav downgrade. Market's focus will turn to today's ISM manufacturing index. The index has ben hovering around 50 in Jun and Jul after 4 months of contraction reading below 50 from Feb to May. In Aug, the index is expected to dip slightly to 49.9. Price paid is expected to drop for the second consecutive month to 82. Employment component turned above 50 for the first time this year in Jul and markets will look into whether it can stay there in Aug. Construction spending is expected to drop -0.4% in Jul. Nevertheless, oil will remain the main driving behind the dollar and further rally in the greenback will be seen if oil will drop through 110 level.


Sterling's broad based weakness continues today. GBP/USD dives to as low as 1.7850 so far. EUR/GBP made another record high at 0.8163. GBP/JPY is now pressing this year's low of 192.60. Prime Minister is expected to propose a 1billion pound plan to help reverse the housing market slump in UK. But the news provides little support to the Sterling. Swissy is a touch weaker after data shows Aug CPI dropped -0.3% mom with yoy rate moderated to 2.9%. Q2 GDP growth slowed to 2.3% yoy. UK PMI construction and Eurozone PPI will be featured in the European session.

The Japanese yen remains generally firm today so far. BoJ governor Shirakawa said that inflation in Japan will probably remain high for some time and monetary policy would be conducted "flexibly". Japanese stock markets remains pressured after Prime Minister Fukuda's resignation yesterday, with Nikkei dropping more than 200pts. Taro Aso, the secretary-general of the ruling Liberal Democratic party, is the favorite to take over from Fukuda.
AUD/USD Daily Outlook

Daily Pivots: (S1) 0.8460; (P) 0.8520; (R1) 0.8562; More

AUD/USD's fall resumes today and dives to as low as 0.8432 so far. At this point, intraday bias remains on the downside as long as 0.8554 minor resistance holds. Firm break of 0.8512 key medium term support now encourages deeper fall to test long term rising trend line support at 0.81 level. On the upside, above 0.8554 will turn intraday outlook neutral first. But break of 0.8698 resistance is needed to signal a short term bottom is in place. Otherwise, further decline is still expected after brief recovery.

In the bigger picture, a medium term top is at least in place at 0.9849 with bearish divergence condition in weekly MACD and RSI. Initial downside target of 0.8512 cluster support (61.8% retracement of 0.7675 to 0.9849 at 0.8505) is already met. The main question now is whether long term up trend from 0.4773 (01 low) has completed too.

Bearish divergence condition in monthly MACD and RSI serve as an important signal of a long term top. Though, focus should still be on the long term rising trend line (0.4773, 0.7015, now at 0.8100). Firm break will confirm that such long term is finished and bring further medium term fall to 0.6773/0.8008 support zone. On the upside, above 0.8698 will signal that a short term bottom is in place and bring larger scale corrective rebound before staging another fall.

Economic Indicators Update
GMT  Ccy  Events                 Actual  Consensus  Previous  Revised
4:30  AUD  RBA rate decision  7.00%  7.00%          7.25%  
5:45  CHF  Swiss CPI M/M Aug  -0.30%  -0.10%         -0.40%  
5:45  CHF  Swiss CPI Y/Y Aug  2.90%  3.10%          3.10%  
5:45  CHF  Swiss GDP Q/Q Q2  0.40%  0.20%          0.30%  
5:45  CHF  Swiss GDP Y/Y Q2  2.30%  2.40%          3.00%  
8:30  GBP  U.K. PMI construction Aug  36       36.7  
9:00  EUR  Eurozone PPI M/M Jul   1.30%          0.90%  
9:00  EUR  Eurozone PPI Y/Y Jul   9.10%          8.00%  
14:00  USD  U.S. ISM manufacturing Aug  49.9          50  
14:00  USD  U.S. ISM manufacturing Prices Aug 82          88.5  
14:00  USD  U.S. Construction spending Jul  -0.40%          -0.40%