Tuesday’s session saw the Australian Dollar trade within a 70-pip range as the RBA reiterated its near-term monetary policy neutrality and the greenback broadly retreated on US-China trade news. The minutes released by the RBA yesterday flagged a number of “significant uncertainties” for the domestic economy, citing china specific risks emanating from cooling domestic demand and trade tensions. Concerns over the wealth effects of house price weakness on consumption were also raised, house prices fell by the largest amount since 1983 in the three months through to January.
Unsurprisingly the Aussie fell on the release with AUD/USD retreating from 0.7139 to 0.7115 and continued its slide in the London session to touch intraday lows of 0.7106. Headlines indicating the US is demanding a stable Chinese Yuan as part of current trade negotiations forced the greenback lower across the board and allowed the Aussie to rebound and make fresh 2-week highs of 0.7174. The NZD was also buoyed by the news however the AUD/NZD cross rate still managed to grind 20 points higher to 1.0430.
Looking ahead we have the ever important Q4 wage price index released this morning. Both the RBA and investors will be closely watching the read for any indication of a pickup in wage inflation. With markets expecting a 0.6% rise in Q4, any deviation from this will likely result in AUD volatility. That said, we see technical resistance for AUD/USD at 0.7175 before the psychological 0.7200 handle. On the downside, support is evident at daily lows of 0.7106.