EUR/AUD Holds Firmly Above 1.66300 level As RBA Holds Rates Steady For Third Consecutive Time
Key Takeaways:
- The euro held firmly above the $1.66300 mark on Wednesday during the Asian session, supported by a combination of factors
- The RBA held rates steady for the third consecutive time, as widely expected, a decision that helped exert upward pressure on the EUR/AUD pair
- A slew of positive Chinese macro data released recently extends support to the antipodean and might help limit further gains around the EUR/AUD cross
- Investors look forward to the ECB and Bundesbank Presidents' speeches during the late-European session
The euro held firmly above the $1.66300 mark on Wednesday during the Asian session as investors continued assessing the latest RBA interest rate decision while digesting a slew of softer German macro data from the Eurozone's largest economy. The primary currency is now trading just a few pips from a two-week high (1.66798) touched the previous day and looks poised for further gains amid the prevalent tone surrounding the euro.
On Tuesday, the Reserve Bank of Australia (RBA) announced that it had decided to leave the cash rate target unchanged at 4.35% for the third consecutive time and the interest rate paid on exchange settlement balances unchanged at 4.25% during the March monetary policy meeting. Tuesday's decision was widely expected and came amid signs that economic growth has slowed following a 425bps rate hike over the past two years.
The accompanying monetary policy statement (MPS) showed the board's highest priority was returning inflation to target within a reasonable timeframe and that it needed to be sure that prices are moving towards the 2 – 3% range in 2025 and the midpoint in 2026
Markets perceived the RBA Monetary policy statement as somewhat dovish. It lacked a clear path for interest rates, as the central bank did not rule anything in or out. It said it would rely upon incoming data and the assessment of risks in its upcoming monetary policy meetings.
Consequentially, the Australian dollar (AUD) weakened by as much as 0.57% against the euro currency, lifting the EUR/AUD cross to a two-week high/1.66798 level before paring gains and moving slightly lower to close with modest gains above the $1.66300 mark.
The fresh batch of positive German macro data released Tuesday extended support to the euro. The ZEW Indicator of Economic Sentiment for Germany rose for the eighth month to +31.7 in March 2024, reaching its highest level since February 2022 and surpassing market expectations of +20.5.
The improvement in German investor morale could be attributed to investors' anticipation of potential interest rate cuts by the European Central Bank in the coming six months, heightened economic expectations for China, and the anticipated dollar depreciation against the euro.
The European Central Bank's vice president, Luis de Guindos, confirmed upcoming rate cuts after telling a Greek newspaper on Tuesday that the bank will be in a position to discuss an interest rate cut in June depending on incoming wages, growth, and inflation data.
Elsewhere, the ZEW Indicator of Current Conditions for Germany rose 1.2 points to -80.5 in March 2024, up from -81.7 in the previous month and surpassing market expectations of -82.0.
Despite the combination of negative factors, the antipodean continues to draw support from a slew of recent positive Chinese macro data. This warrants caution to traders against submitting aggressive bullish bets around the shared currency.
Data on Monday showed China's retail sales increased by 5.5% year-on-year in January-February 2024 combined, topping the market consensus of 5.2% and coming after a 7.4% rise in December. Additionally, China's industrial production expanded by 7.0% year-on-year in January-February 2024 combined, faster than a 6.8% growth in December 2023 and beating market forecasts of 5%.
As we advance, investors look forward to the ECB and Bundesbank Presidents' speeches during the late-European session. Traders will watch Lagarde’s and Nagel's speeches closely, as they are often used to drop subtle hints regarding future monetary policy and interest rate shifts. Their comments could determine a short-term positive or negative trend around the EUR/AUD cross.
Technical Outlook: One-Day EUR/AUD Price Chart
From a technical standpoint, EUR/AUD is trading above a key pivot level following an extension of the bullish bounce from a key support level plotted by an ascending trendline extending from the late-January 2024 swing lower lows. Some follow-through buying would uplift spot prices toward the 1.66781 level (R1), which would act as a hurdle against further upticks. A convincing move above this level will pave the way for a further rise toward the key resistance level plotted by an ascending trendline extending from the mid-January 2024 swing to higher highs. A decisive break above this level would reaffirm the bullish thesis and act as a fresh trigger for new buyers to jump, paving the way for further gains around the shared currency.
All the technical oscillators (RSI (14) and MACD) on the chart are in dip-positive territory, suggesting continuing the bullish price action this week. Accepting the price above the technically strong 200-day (yellow) Exponential Moving Average (EMA) at the 1.63324 level validates the bullish outlook.
On the flip side, if sellers resurface and spark a bearish reversal, initial support comes in at the 1.66103 level. On further weakness, the EUR/AUD price could drop to tag the 20-day (blue) EMA at the 1.65716 level before pushing further downward toward the 1.65534 level (S1). A clean move below this support level could further see the shared currency decline to tag the 50-day (red) EMA at 1.65329 before accelerating its drop toward the key support level (ascending trendline extending from the late-January 2024 swing lower-lows.). A subsequent break below this key support level would make the EUR/AUD cross vulnerable to a drop toward the demand zone, ranging from 1.64509 - 1.64395 levels, followed by the 200-day (yellow) (EMA) level at 1.63324 and, in extreme bearish cases, EUR/AUD could extend a leg down toward the 1.62283 level.
