AUD/USD: NFP Uncertainty Trumps Bearish RBA Statement

Aussie Dollar traded lower this morning following the release of RBA Monetary Policy Statement. In it RBA lowered 2014 growth forecast, citing reduced mining investments for reason of decline growth. High AUD is also another factor that was cited, with RBA saying that lower exchange rate likely needed to ensure stable growth.

AUD/USD pushed to a low of 0.9428 following the news, but prices did recover quickly following the release of Chinese Trade Balance numbers. October Trade Balance came in at USD $31.10B, more than twice of September led by stronger than expected exports - 5.6% growth vs 1.7% expected and a reversal from September's -0.3%. With Australia's economy highly tied to China's economic health, a stronger Trade Balance is always welcomed, lifting AUD/USD from the dip.
AUD/USD: Hourly" width="1033" height="659">
However, it should be noted that growth rates of imports remained relatively stable at 7.6%, slightly better than the 7.4% expectation. Hence, the strong rally that followed given the overall bearish tune (due to RBA guidance and weak employment numbers) appears to be a tad optimistic especially since it is right on the heels of yet more bearish announcements just an hour prior.

This observation can be explained when we consider the technical factors - prices were hitting the Channel Bottom support which happens to be the confluence with last Friday's closing support level, while Stochastic readings were rebounding higher after dipping briefly into the Oversold region. Hence it is reasonable to believe that post Chinese data bullish reaction was exaggerated due to technical bullish influences. This assertion is further confirmed when the rally was capped by Channel Top resistance, opening up a potential move towards Channel Bottom once again.

Another possible reason would be the US Non-Farm Payroll announcement later today. Market is expecting a weaker than expected NFP print which would result in Fed refraining from tapering QE in the next few months (or so they believe). As such, USD was always having a predisposition for knee-jerk weakening, resulting in the strong bullish movement in AUD/USD over the Chinese news.

That being said, with market already pricing in a weak USD scenario ahead of the actual NFP announcement, the risk of the opposite happening becomes higher - due to typical buy the rumor sell the news behavior. Therefore, the likelihood of prices heading towards Channel Bottom eventually (perhaps next week if not post NFP) increases. Even in the most AUD/USD bullish scenario where NFP came in negative, AUD/USD may still remain bearish as long as price stay below 0.952 - 0.954 ceiling.

Original post