Aussie gapped lower, but remains above 0.74 handle

Monday, Mar 07 2016

There were no data releases from Australia this morning. After it was initially pushed lower, Aussie managed to stay above 0.74 handle. The AUD rally may be somewhat overextended in the near term. The Reserve Bank of Australia kept rates steady for a 10th month at 2 percent, citing reasonable prospects for continued growth at home.

The industrial and precious metals rally, together with a strong recovery in risk appetite over the last few weeks, has seen a gathering interest in long AUD trades and the last week saw the AUD rallying despite fairly explicit dovish guidance from the Reserve Bank of and a stronger-than-expected Q4 GDP release.

Another key is the ramping up of consumer spending and service-related activity in China, thereby lessening the downside risks to growth associated with its multi-year structural adjustments affecting both the private sector and state-owned enterprises. Chinese policymakers recently cut bank reserve requirements again to bolster liquidity and credit demands.

Improving prospects internationally would go a long way towards stabilizing commodity prices, and help to alleviate the significant retrenchment underway among producers. China gave itself wiggle room in lowering its economic growth target this year, though it still set the pace at a relatively high 6.5% to 7%, suggesting the government prefers buoying the slowing economy to more painful retrenchment.

Aussie is currently being traded around 0.740 area. Pair is likely to find support around 0.7350 handle and resistance above 0.7450 level. There will be no major data releases later today.

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