The Australian dollar surged to a 14-month high of 0.8920 as the Reserve Bank of Australia surprised the markets with a 25bp rate hike, and remains the best performing currency against the greenback after rallying nearly 140pip on the day. However, as the AUD/USD remains overbought, with the 30-minute RSI approaching 80, the overnight rally looks to have stalls at the fresh yearly high, and the pair may fall back over the next 24 hours of trading to fill-in the gap from the 100-SMA at 0.8765 as this week’s economic docket is expected to show a drop in home loans paired with a weakening labor market. Nevertheless, the rise in risk appetite remains supportive of the rally and we may see the aussie-dollar continue to search for a top as investors speculate the central bank to tighten policy going forward but, as daily price action exceeds the average true range, we could see the pair hold steady throughout the U.S. trade.
The British pound rose to a high of 1.6050 following the rise in U.K. home prices but retraced the overnight advance following the unexpected drop in manufacturing and industrial outputs, and remains the worst performing currency against the U.S. dollar. The GBP/USD is little changed from the previous day and continues to hold the narrow range from the end of September, and the pair is likely to trade sideways over the next 24 hours of trading as investors weigh the outlook for future policy. As a result, we are likely to see the pound-dollar hold along the 100 and 200-SMA at 1.5950, and may continue to build a bottom ahead of the Bank of England interest rate decision on Thursday.
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To discuss this report contact David Song, Currency Analyst: dsong@fxcm.com
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