Overnight US equity markets closed stronger on the back of better-than-expected reports from Coca-Cola, Johnson & Johnson. The under siege Goldman Sachs also reported improved earnings taking some of the sting out of the latest legal woes. Heightened investor optimism saw the balance of risk fell to riskier assets with key commodities, metals and energies heading north, by default the Aussie was a primary beneficiary breaking through 93 US cents following from yesterday’s strength on the back of the RBA minutes.
Yesterday the Aussie was well supported on the release of the RBA minutes for April. The minutes painted a decidedly bullish picture of the local economy with a particular focus on expansion most of Australia’s major trading partners in Asia. The communication pointed to a need to take immediate action in increasing benchmark interest rates stating it was “prudent not to delay adjustment” with the economic outlook suggesting “there was a case for a further step in the process of returning interest rates to more normal levels”. Recent communication from the RBA has stressed the importance of interest rates to return to neutral levels given growth likely to be around trend and inflation close to target. Neutral interest rates are deemed to be around the 4.75 – 5 percent range.
Local economic data today includes Westpac leading index for February. We expect the local unit to remain supported from what appears to be lining up to be reasonable strength in the local equity market. From a technical perspective the mid 92.9 US cents will be pivotal – key support can be seen around 92.65 US cents. The RSI (Relative Strength Index) shows price activity sitting neatly around the mid 50’s, which indicates current market levels are appropriate relative to previous price activity. Technical analysts believe an RSI reading of less than ‘30’ or great than ‘70’ suggests a reversal of price action is imminent. At time of writing the Aussie is buying 93 US cents.