AUD/JPY
No Change Says McFarlane: Traders pared back gains on profit taking as the Reserve Bank of Australia left interest rate at the current 5.5 percent. Citing that inflationary pressures had abated on lower crude oil prices, in comparison to the record prices from the summer months, Governor Ian McFarlane decided to leave rates steady and concentrate on the visibly lower domestic demand. A top in the housing sector has also raised some concern for the policy head with growth slowing to the lowest in 12 months to 0.2 percent on a monthly comparison. On the yearly figure, the economy is expanding at a 2.6 percent rate. Comparatively, in favor of Yen bulls, leading economic indicators are pushed for a confirmed turnaround in the world's second largest economy. Posting inline with earlier estimates, the figures were a considerable improvement from last month's print, which suggested a considerable slowdown up ahead. Nonetheless, the interest rate differential in the cross presents traders with a higher rate of return, ultimately garner a return to bidding in the future.
Technically Speaking: The seemingly inexhaustible rally the Aussie has held against the yen, looks to have taken its first break in a month. The sharp correction, that has produced a poignant spike high, may have already run out of steam. Price action in the pair has already tested the 23.6 fib of the month's rally without success at 90.09. This level is somewhat minor however as technical level with a 50 fib of the yen run from 1990 to 2000 at 89.90 offering a stable floor for the Aussie dollar to rally from. Little is capping the pair northward besides the spike high itself at 91.38.
AUD/USD
Profit Taking: Aside from profit taking on the steep move higher over the last few weeks, traders saw today's decision by the Reserve Bank as a suggestion that the previous tightening bias may no longer be needed. According to Governor Ian McFarlane, inflationary pressures have abated as oil prices have retraced since hitting record highs. Now within the central bank's range of a 2-3 percent target, price increases do not pose a serious threat as before. Additionally, higher rates may crimp already weak domestic demand and foster further problems for the already declining housing sector. With a goldilocks economy now in place, rate hikes may not be required for sometime. However, like the NZDUSD currency pair, the underlying price action may receive some bidding as interest rate spreads still remain between the two economies.
Technically Speaking: A 38 fib of the June 2004 to March 2005 Aussie dollar rally at 0.7540 seems to have finally pulled the rug out from under the recent Aussie run. After easing 100 pips, the AUDUSD pair found an initial bottom with the lower bound of a rising trend channel that is now hovering around 0.7470. If this level should break under another round of Aussie selling, the next technical level at 0.7450 will offer another point for Aussie bulls to gather strength. On the other hand if the pair continues its initial run up, a slower move back up to 0.7545/50 will see the next battle for position.
NZD/USD
S&P Comments Hammer Kiwi: With no economic news on the docket, traders pared back gains in the major currency even before the Reserve Bank of New Zealand's decision on short-term rates was released. Earlier on in the session, Standard and Poor's, the credit rating agency, stated concern over the growing current account deficit in the country as it has ballooned to an “unsustainable” 8 percent of the overall gross domestic product. Although affirming its AA status, the agency's comments sparked a selloff in the underlying as speculation amassed over a potential downgrade of the region's credit worthiness, affecting its denominated assets. All of this before the rate hike was released. After the release, there still remained some bearish momentum even as policy officials raised the overnight cash rate as anticipated. Traders remained bearish as Governor Alan Bollard released no subsequent comments on further tightening in the region with many expecting further tightening bias to lead to a precipitous drop to an already slowing economy.
Technically Speaking: A nearly 200-pip drop was end of the nearly month long kiwi rally that has taken the single currency over 450 pips against the benchmark currency. The slew of traders unloading the kiwi provided enough momentum for the pair to blow through the 0.7100/7090 level that was such a strong resistance level on the way up. As the pair dries up in light liquidity trading a hold of the 0.6992 level, which has offered support numerous times before, will be a strong kiwi rallying point. On the way back up, a kiwi return will have to once again topple the 0.7090 level that has offered trouble to kiwi appreciation since July.
Richard Lee is a Currency Strategist at FXCM.
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