Earlier today, the U.S. Dollar Index extended losses against the basket of the major currencies as yesterday’s Fed statement didn’t give clear signal on the timing of its next rate hike. How did this drop affect the technical picture of euro/U.S. dollar (EUR/USD) currency pair, USD/CAD and AUD/USD?
The dollar fell to its lowest since mid-November on Thursday after the Federal Reserve disappointed investors hoping for a clear sign of a March interest rate rise, while the Australian dollar rallied after data showing a record trade surplus. Money markets had shown a 20% chance of a rise in U.S. rates next month but that slipped to as little as 15 percent despite the Fed sending a broadly upbeat message on the economy.
The AUD/NZD currency pair could be about to turn decisively higher. Last night’s Reserve Bank of Australia (RBA) policy statement was as neutral as it could get. More to the point, there were no hints of further interest rate cuts. In contrast, the RBNZ suggested at its last policy statement that more rate cuts could be on the way. This alone makes me think that the AUD/NZD may have bottomed out.
Thanks to increased uncertainty about the U.S. elections and a drop in the dollar, buck-denominated gold has been surging higher in recent days to reach north of $1,300 per ounce today. The stock market sell-off has further supported the perceived safe-haven precious metal.
The Australian dollar and the Japanese yen are the obvious choices when it comes down to trading during the Asian session tonight. Not only do we have rate decisions from central banks of both Australia and Japan, but we will also have the latest manufacturing PMI data from China, the world’s second largest economy and Australia’s largest trading partner.
The Australian dollar has been fairly stable recently, and it has actually risen against weaker rivals such as the New Zealand dollar and Japanese yen. However, that could all change if investors start to dislike risk, if, for example, U.S. elections or disappointing corporate earnings cause global equities to retreat.