Australian dollar weakens mildly after the expected RBA hike as economists are taking the messages from the accompanying statement as a signal to pause in the tightening cycle. RBA became the first central bank to raise rates twice this year and hiked 25bps to 3.50% today. The bank noted in the accompany statement that the adjustments at the October and November meetings will work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead, which is taken a a signal that it will pause for some time. Also, the bank noted that strength in Australian dollar might constrain output in the tradeables sector and dampen price pressures. Aussie weakens mildly but remains in tight range against dollar and yen. Risk sentiments will likely remain the major driving force in movements in Aussie exchange while tomorrow's retail sales report will be a factor to trigger volatility too.

Looking at AUD/JPY, as noted before, medium term rebound from 55.11 has likely made a top just ahead of 61.8% retracement of 104.46 to 55.11 at 85.60 and 61.8% projection of 55.53 to 80.43 from 70.74 at 86.12 on bearish divergence conditions in daily MACD. Fall from 85.30 is in favor to continue as long as 84.02 minor resistance holds, towards 76.32 support first. Break there will confirm medium term topping and target 70.74 support next.

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Developments in stock markets are also supporting further rally in yen, and to a lesser extent dollar. As note before, medium term rebound in S&P 500 from 666.8 should have completed in Oct at 1101 with bearish divergence condition in daily MACD. Yesterday's rebound was weak and kept well below 1066.83 near term resistance and thus, outlook remains bearish for further decline to 38.2% retracement of 666.8 to 1101.3 at 935.35.

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Dollar index's pull back yesterday suggests that consolidation from 76.57 is still in progress. Intraday bias remains neutral for the moment and some more sideway trading might be seen. But after all, we'd hold on to the bullish view as long as 75.56 cluster support holds (61.8% retracement of 74.94 to 76.57). That is, a short term bottom is at least formed at 74.94 and a break of 76.57 would bring stronger rise to 77.47 to confirm medium term reversal.

EUR/USD

On the data front, New Zealand labor cost index rose 0.4% qoq in Q3. UK PMI construction is expected to rise slightly to 47.2 in October. US factory orders are expected to rise 1.1% in September.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.0695; (P) 1.0782; (R1) 1.0853; More.

USD/CAD retreats after hitting 1.0850 and with 4 hours MACD crossed below signal line again, intraday bias is turned neutral. Some sideway trading might be seen but after all, short term outlook remains bullish as long as 1.0652 support holds. Above 1.0850 will bring rally resumption towards 1.1123 resistance next. However, deeper pull back should be seen if 1.0652 support is broken. Nevertheless, in such case, downside is expected to be contained well above 1.0205 low and bring rally resumption.

In the bigger picture, the strong break of 1.0631 resistance and sustained trading above 55 days EMA indicates that a medium term bottom might be in place at 1.0205, with bullish convergence conditions in daily MACD. As noted before, fall from 1.3063 is viewed as a correction to long term rise from 0.9056. Such correction might have already completed with three waves down to 1.0205 already (1.0784, 1.1732, 1.0205). Break of 1.1101 resistance will confirm this case and target 61.8% retracement of 1.3063 to 1.0205 at 1.1971 at least. On the downside, break of 1.0205 will invalidate this view and bring down trend resumption to parity instead.

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Economic Indicators Update

GMTCcyEventsActualConsensusPreviousRevised
21:45NZDLabor Cost Index Q/Q Q30.40%0.30%0.30% 
3:30AUDRBA Interest Rate Decision3.50%3.50%3.25% 
9:30GBPPMI Construction Oct 47.246.7 
15:00USDFactory Orders Sep 1.10%-0.80%