RBA will not increase the cash rate until actual inflation is sustainably within the 2% to 3% target range

7 July 2021, 03:47

Market Focus

US equities declined as low 10-year Treasury yield weighed down on risk-sentiment. The S&P 500 and Dow Jones Industrial Average index fell 0.2% and 0.6% respectively. Meanwhile, the tech-heavy Nasdaq index closed at another record high, climbed 0.4%. The 10-year Treasury yield dropped to the lowest point since February, traded at 1.351%. Sarah Hunt, a money manager at Alpine Woods, commented that a 10-year yield below 1.45% had people worried about a potential economic slowdown.

Investors are growing concerns about where the oil price will go after OPEC+ abandoned their Monday meeting. The two big players Saudi Arabia and the UAE had a dispute over an extension of the output agreement to 2022. The immediate consequence of the collapse in talks is that the output hike expected for August won’t take place, leaving the fuel market short of barrels. However, over the medium term, the current six-year high oil price at mid-$70s may prompt oil-rich nations to pump more.

Reserve Bank of Australia kept benchmark rate unchanged on Tuesday, and here is Bloomberg’s key takeaway from RBA’s monetary statement:

  • The central bank announced a pared-back extension of its QE program and expects interest rates at record low for at least another two-and-a-half years.
  • Purchase of longer-dated securities is lowered from A$5 billion a week to A$4 billion a week to at least mid-November.
  • RBA will not increase the cash rate until actual inflation is sustainably within the 2% to 3% target range.

Main Pairs Movement

Aussie and Kiwi advanced as much as 0.92% and 1.14% respectively before the US session, but all the gains were pared and both pairs closed in the red. Other G-7 currencies followed a similar path except for the Japanese Yen. Tuesday’s rise in dollar greenback was somewhat peculiar given a big miss in June’s ISM Non-Manufacturing PMI, printed 60.1 compared to anticipated 63.5, and was declined from May’s 64. Perhaps speculators are positioning for a more hawkish FOMC meeting minutes for June, which may justify why Gold fell sharply from $1815 to $1790, and the 10-year Treasury yield lost 7 basis points as the US session kicks in.

UK Prime Minister Borris Johnson announced on Monday that the government will proceed with the final stage of easing lockdown restrictions on July 19th. The government is aware of potential pick up in infections after fully reopened, but is also confident that NHS will be able to handle the situation than before. This may mitigate some downside risk for the Sterling if the dollar were to strengthen on Wednesday’s FOMC meeting minutes.

Technical Analysis

XAUUSD (Daily Chart)

After jumping to fresh three weeks highs at the 1810 level, gold pullbacks during the American trading session. On the daily chart, gold remains downside as it continues trading below the 50 simple moving averages and the descending trend line. Despite showing some bullish hope on the intraday bias, today’s bounce back from the midline of the Bollinger band seems to discourage the bulls. From the technical indicator, the MACD has slightly turned back to negative, suggesting that the bears might show some potential at this point. At the same time, the RSI has not reached the oversold territory, giving the bears room to move further.

Resistance: 1829.14, 1876.18

Support: 1771.95, 1676.89

EURUSD (4- Hour Chart)

EURUSD declines near 1.1800 level as the US indexes are sharply lower, suggesting the demand for the greenback. From the technical aspect, the intraday bias turns bearish because the pair has tackled the 20 and the 50 simple moving averages. In addition, the break of the support level at 1.1837 gives the pair some potential to the downside testing the next support at 1.1704. The dominant trend is bearish as the MACD has turned negative whilst the RSI has not reached the oversold territory, providing bears room to extend further south.

Resistance: 1.1837, 1.1919, 1.1985

Support: 1.1704 

GBPUSD (4- Hour Chart)

GBPUSD suffers downside pressure toward 1.3780 amid some legal action against Brexit and the decline of the US bond yields. From the technical perspective, the dominant trend turns to the downside on the 4- hour chart as the pair falls below the 20 SMA and below the support level at 1.38. Moreover, previous short-term bullish momentum has been diminished as the pair bounces back to the descending trend line. The bears are supported by the negative MACD and at the same time the RSI of 43 suggests that the bearish momentum still has potential to continue, heading toward the next support at 1.3675.

Resistance: 1.38, 1.3926, 1.4007

Support: 1.3675