Aussie Weak; RBA Hikes Rate then Hints at Slowdown

The AUD USD is trading sharply lower at the mid-session.Overnight the Reserve Bank of Australiahiked its benchmark interest rate as expected by 25 basis points to 4.50%.

The AUD USD is trading sharply lower at the mid-session.Overnight the Reserve Bank of Australiahiked its benchmark interest rate as expected by 25 basis points to 4.50%.Based on comments from RBA Governor Glenn Stevens, this is likely to be thelast rate hike for a while. Stevens feels that the RBA has reached itsobjective by bringing rates back to normal between 4.50% and 5.00%. He furtheradded that he feels inflation was likely to remain in the upper half of theRBA’s target range.

Adding further to the weakness in the Australian Dollar wasthe sell-off in the equity markets. Traders also remain a little cautious as towhether a tighter monetary policy in China will curtail demand forAussie goods and services.

The NZD USD is falling in sympathy with the AustralianDollar and a lack of demand for higher yielding assets. Based on the activityby the RBA, many traders now feel the Reserve Bank of New Zealandwill wait until the second half of the year before raising rates. The chartformation suggests a test of the former top and current breakout area at .7199is likely. If this price fails to hold, then look for a full retracement to.7188 to .7156.

The drop in gold, crude and equities is helping to trigger abreak out rally in the USD CAD. After building a support base in April, thispair finally crossed a swing top at 1.0215 to turn the main trend to up on thedaily chart. Upside momentum indicates that 1.0302 is the next upside objectivefollowed by 1.0366. The weakening Canadian Dollar is most likely pleasing tothe Bank of Canada which hinted last week that a strong currency is likely tohave an impact on inflation and monetary policy. This led this analyst tobelieve that the BoC was intervening to weaken the Loonie.

The Euro is trading sharply lower at the mid-session afterreaching a new 12-month low. Although a bailout agreement was reached by theGreek government, the European Central Bank and the International MonetaryFund, bearish traders have shifted their focus to the growing fiscal problemsin Spain and Portugal.

Problems in the Euro Zone are spreading to the U.K. Tradersare also concerned about the May 6th election. The main worry is that thecurrent polls suggest the strong possibility of a hung parliament. If thisoccurs, then it may mean that the new parliament may not be able to come upwith concrete plans to fight the budget deficit and sovereign debt concerns.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

Disclainer: