Market news

Overnight Headlines

*USD quiet over US holiday, steady near lows

*US stocks were closed, European shares climbed to near record levels

*RBA sticks to taper decision, but commitment on pace until February

USD is holding near its recent lows, trading just above 92 on DXY. Trading was lacklustre due to the Labor Day holiday in the US. EUR snapped its six days of gains while GBP trades just above the 200-day SMA. AUD broke its four-day win streak and is just below the August high at 0.7425. NZD is off its highs but above the spike July top at 0.7105.

US equities were closed but tech stocks in Europe surged to their highest levels this year. With investors wagering the Fed will likely delay the start of tapering, stocks are extending their bull run in Asia. The Nikkei is also rallying on hopes there will more stimulus from the new LDP leader. The index moved past the psychological 30,000 barrier for the first time since April. Futures in the US are modestly higher.

Market Thoughts – RBA goes ahead with tapering

The RBA was first up in a week full of central bank meetings. The bank kept rates unchanged and decided to continue with tapering its bond purchases from A$5bn to 4bn per week. This reduction was originally announced in July and the market had been speculating that they would delay this due to the worsening Covid situation.

AUD initially rallied after the announcement to 0.7468 before reversing lower. The RBA will maintain it flexible approach to bond buying. Crucially, its forward guidance remained dovish as it reiterated that conditions to raise rates are unlikely to be met until 2024 at the earliest. AUD/USD is trading on support from the August high at 0.7425. The Fib level below here of the February-August move comes in at 0.7404.

Chart of the Day – AUD/NZD struggling to move higher

After a lot of chatter about delaying the planned for taper, the RBA stuck to their guns. But they were dovish about the next steps amid ongoing lockdowns across the country. Importantly, buying A$4bn per month will continue until mid-February.

The aussie’s knee-jerk jump higher has turned and AUD/NZD looks like it is printing a bearish pin bar candle. Bulls tried to push above trendline resistance from July above 1.0450. But sellers are winning the day with prices back into consolidation and now on the December 2020 bottom at 1.0418. Bearish momentum could pick up after the rejection of higher prices and challenge the cycle low at 1.0345.

Jamie DuttaAnalyst / Trader

"With extensive experience as a full time trader and financial market commentator, I have worked as a trader in top tier investment banks and trading houses, including Morgan Stanley and GAIN Capital trading Forex, Index derivatives. and Bonds. I combine technical analysis with a deep fundamental knowledge to identify trade set-ups. My real life experience allows me to break down the complexities of financial jargon and trading. This means everyone can better understand the compelling forces of greed and fear which are realised every day in countless ways across markets."

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