RBA Shocks The Market
The AUD/USD currency pair posted fresh lows yesterday, dropping almost 140 pips in the aftermath of RBA’s (Reserve Bank of Australia) unexpected announcement regarding a rate cut. As Tuesday’s bank communication, the benchmark interest rate for the Australian economy has been reduced bto 25 basis points to an all-time record low of 1.75%. The bears prevailed as the bulls were caught off-guard, with the RBA’s rate cut announcement sending the pair from a 4-days high to the 0.7720 thresholds. Lowering the key cash rate, officials hoped to win the fight against lower prices pressure and jolt the economic growth. With new data about the deterioration in inflation, the official economic prospect was also revised downwards. At this moment, the international markets are still assessing RBA’s decision mostly due to the fact that the rate cut completely shadowed the fact that domestic data posted over expectations earlier yesterday. Authorities should take note that repeated spikes in the AUD could become a matter of concern in the future.
Also on Tuesday, Markit’s manufacturing sector figures in the UK came out under expectations for the beginning of the second quarter, surprising investors to the downside. The Markit/CIPS manufacturing PMI (Purchasing Managers’ Index) unexpectedly deteriorated to 49.2 for the month of April, hitting the lowest level since February 2013 at the start of the year’s second quarter. Although estimations were sitting at the 51.3 thresholds, the reading came in even lower than March’s revised 50.2.
On Monday, the United States’ manufacturing index came in also below expectations, expanding not as fast as anticipated, as per latest ISM (Institute of Supply Management) data. The manufacturing PMI calculated by the ISM went down to 50.8 in April, reversing its growth from March’s 51.8 and also posting under the expected 51.4. We should keep in mind that, although the reading is smaller than the other month, a posting above the 50.0 level is still considered as an expansion in the sector and March’s figure was the first one above this threshold since August 2015.
The yellow metal reversed its gains from the European session high at $1,301.79 per ounce, arriving to trade flat on Tuesday, near the $1,292 per ounce level. The metal failed to keep the price above the $1,300 psychological threshold. Looking at the USD trend, we can see that the comeback of the dollar has put an end to the gold’s brief upward trajectory. As prices continued to scale up, a bearish divergence could have been seen, but the RSI does not confirm it. As theory dictates, the occurrence of a bearish divergence is one of the first signs of a weakening in momentum.
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