AUD/USD: 2-way trades likely - OCBC

Australian Dollar (AUD) continued to trade near recent highs post-RBA cut yesterday. RBA cut its OCR by 25bps as expected, citing restrictive financial conditions 'which is weighing on demand and is helping to bring down underlying inflation'. The tone of the statement is somewhat balanced but still underscores our view that the rate-cutting cycle is likely to be a shallow one. AUD was last at 0.6360 levels, OCBC's FX analyst Christopher Wong notes.

Bullish momentum on daily chart intact

"RBA opined that 'the labour market has remained strong" and revised down unemployment rate to 4.2% from 4.4% previously anticipated. Labour cost growth has eased but remains high. At the press conference, Governor Bullock emphasised that the decision to cut rates 'do not imply that future rate cuts along the lines suggested by the market are coming' and later described market pricing as 'unrealistic'."

"She mentioned that the board will need more data that inflation is continuing to decline. RBA reiterated that they would highly prioritise 'sustainably returning inflation to target', and cautioned that 'disinflation could stall, and inflation would settle above the midpoint of target range'."

"Overall, we continue to view RBA rate cut cycle as shallow and is in a no-hurry-to-cut type of easing path. Bullish momentum on daily chart intact while RSI is near overbought conditions. 2-way trades likely. Resistance at 0.6370, 0.6420 (100-DMA). Support at 0.6310, 0.6280 (21-DMA)."