EURAUD: Downside pressure intensifies after RBA statement

The Reserve Bank of Australia announced a 25 basis point rate hike to 3.35% (the highest level since September 2012), in line with market expectations. The central bank has raised rates by a total of 325 basis points in nine hikes since last April. Affected by inflationary pressures and a tight labor market, the committee said in a statement that further interest rate hikes will continue in the coming months. The central bank expects CPI to fall but remain well above target at 4.75% this year and fall to around 3% in mid-2025. In terms of economic forecasts, the central bank expects Australia’s GDP to slow to around 1.5% this year and next. In addition, the central bank expects the Australian unemployment rate to rise to 3.75% by the end of this year.

Figure 1: Australian interest rates. Source:Trading Economics

The Sentix Investor Confidence Index for the Eurozone in February released yesterday rose to -8 for four consecutive months, better than market expectations of -12.8. The data was the best since March last year, but overall, it has been in negative territory for 12 consecutive months. Patrick Hussy, managing director of Sentix, said that “a recession in the euro area is not on the table for now”, but “a stagnation scenario is building”.

Figure 2: Eurozone Retail Sales. Source: Trading Economics

Retail sales in the Eurozone fell short of expectations in December. Year-on-year, the data fell for the third time in a row and recorded -2.8%; month-on-month, the data recorded -2.7%, the largest drop since April 2021. Rising prices and central bank rate hikes put significant pressure on consumers, with sales of food, beverages and tobacco falling the most (-2.9%), while sales of non-food products also recorded -2.6%. The pain for consumers may be far from over, as the ECB has signaled further rate hikes in March and May. Economists and investors basically expect the terminal rate to be between 3.25% and 3.50%.

Technical analysis:

The 4-hour chart shows that EURAUD pared gains after hitting a short-term high since January 20 yesterday (1.5651). After the RBA rate decision, the selling pressure intensified and the pair fell further below the FR 50.0% level (1.5500), which extended from the peak to the low last month. The current exchange rate is testing the dynamic support of 100-period SMA and 1.5440 (FR 38.2%). Breaking through these two key supports may mean the end of the recent rebound, and the exchange rate will continue to test the next support at 1.5370. In addition, if the exchange rate finds bull support and regains ground at 1.5500, the next resistance will focus on 1.5560 and this year’s peak of 1.5651. From the perspective of indicators, the 4-hour MACD double-line formed a death cross, while the white bar turned red; the 1-hour chart showed that the MACD and the exchange rate formed a negative divergence, and the MACD fast line fell below the 0 line.

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Larince Zhang

Market Analyst

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