Central Bank Policy Meetings: Rangebound Forex Signals

currency housing

Fairly rangebound forex signals will be sent out in lieu of the major central bank policy meetings underway.

The greenback’s forex signals are still pressured by low yielding currencies after a softer-than-expected US NFP print for September. Those risky currencies were weighed by sell offs while rising money market rates in China intensified concerns on policy tightening by the Chinese central bank.

The movements of G10 currencies were said to be broadly in line with the implied Financial Fair Value model of Barclays. This FX model of Barclays revealed that EUR/GBP were largely undervalued, thus proving that the appreciation has been more moderate than the previous estimation. The FX market is keen to hear the forex signals that will result from US economic data releases, FOMC rate decision and the developments in the China money market.

RBI Policy Meeting

Although Goldman Sachs expect the forex signals from the central bank will leave the repo rate unchanged at 7.50% with consensus estimate at 7.75%; the market is pricing at least a 25 bps rate hike. The broker acknowledge the risk of one more repo rate hike given the new RBI governor’s preference to convey a stern inflation-fighting message. An unchanged decision is likely to pressure short-term Indian interest rates lower and be seen as positive for GDP growth, thus supporting equity inflows.

RBA Recapitalisation

Goldman Sachs actually paid more attention on Australia’s Treasurer announcing a one-off $8.8B recapitalisation of the Reserve Bank of Australia’s balance sheet, given the erosion of the capital buffer via trading losses. This is considered as a function of the higher AUD. The Australian government’s drew down a series of special dividends earlier from the central bank. The recapitalisation had been requested by the RBA Governor and underpins the central bank’s financial credibility.

Australia Housing

Looking to October, Goldman Sachs economists analysed daily prices data from RP Data Rismark point to an estimated plus 1.2% over the first 24 days of the month suggesting that the upwards trend in housing prices has continued at a similar pace, despite some modest softening in the level of auction clearance rates.

Overall, with housing credit growth near to a 35-year low and RBA Deputy Governor Lowe’s forex signals of a comfort in current house price dynamics. The broker does not expect rising house prices as an impediment to further easing.

AUD/USD Technicals
The AUD came under pressure following comments from RBA Governor Stevens; he spoke of valuation concerns in the context of Australia’s relative productivity gap and an eventual Fed taper.

Meanwhile, Barclays technical strategists have raised forex signals on AUD/USD with selling interest near 0.9735, the 200-day average is expected to limit the upside for AUD/USD. The broker would prefer to fade any strength against the 0.9760 highs and look for a move lower in range. Initial downside targets are toward the 0.9530/50 area and potentially 0.9400.

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