AUD/USD, USD/CAD Retrace for Fourth Day Despite Tariff Delay Hopes

View related analysis:

• USD/CAD holds support heading into CPI, but 1.40 remains achievable
• The RBNZ deliver another 50bp cut, AUD/NZD eyes breakout
• AUD/USD weekly outlook: Trimmed-mean CPI, PCE inflation on tap

The Australian dollar was the weakest currency on Wednesday, weighed down by the trifecta of news flows around domestic inflation, tariff headlines and news of capital controls in China.

Australia’s trimmed-mean inflation remained at 2.5% y/y, below the 2.6% expected and slowed to 2.8% from 2.9% less holiday travel and volatile items (seasonally adjusted). While these softer figures don’t likely require immediate action for the RBA to cut again in April, the lack of any upside surprise reinforces the view that they could cut by another 50bp in H2.

China announced they are  rolling out fresh measures to limit capital outflows, which includes measures such as increased security of overseas investment. This could have a negative impact on the Australian dollar to a degree, and could help explain why AUD/USD was the weakest FX major on Wednesday, alongside CPI and tariff headlines.

Conflicting headlines around Canada’s tariffs also caused a stir. There was some excitement that Canada and Mexico’s tariffs could be delayed by another month when President Trump said they would take effect from “April 2^nd”. However, a White House official has since said that the March 4 deadline for tariffs on Mexican and Canadian goods remained in effect “at this moment”.

It remains unclear if this was a slip of the tongue by Trump, who intends but has not yet confirmed that the tariffs will be delayed. But it is a scenario that could help the Canadian dollar and Australian dollar regain ground against the US dollar if it proves true. Ultimately, USD/CAD rose and AUD/USD fell for a fourth day, and I continue to monitor both markets for evidence of a reversal and for them to continue their rebounds from multi-year lows.

Economic events in focus (AEDT)

The RBNZ cut rates by 50bp last week, and while they left the door open to further easing they also said that “the speed and timing of futures cuts remains uncertain”. Take note of today’s business confidence figures, because it could prompt another wave of selling for NZD/USD if sentiment continues to deteriorate.

• 11:00 – NZ business confidence (NBNZ) (Feb)
• 11:30 – AU capital expenditure (Q4)
• 14:35 – JP 2-year auction
• 19:00 – CH GDP
• 19:55 – DE unemployment
• 20:00 – M3 money supply, loans
• 21:00 – EU European Sentiment Indicator, inflation expectations
• 23:30 – ECB minutes
• 00:30 – US GDP (Q4), jobless claims

AUD/USD technical analysis

I outlined by bias for a pullback towards the 0.6277 area in this week’s AUD/USD outlook, and so far it is playing out nicely. However, I am now looking for that area to hold as support and at least provide a small swing low – if not a rebound.

The daily RSI (2) is oversold and a small bullish divergence is forming on the 1-hour RSI (2). And with the AU-US 2-year yield differential pointing higher, my bias is for a swing low to form soon. And a delay in tariffs could help with that very nicely.

USD/CAD technical analysis

I outlined my bigger-picture view for the Canadian dollar last week: I think we have seen a significant swing low on the Loonie, which implied USD/CAD has topped. But I also noted the likelihood of a bounce from the 1.4160 area, which has also played out nicely.

Given the potential for Trump to further delay tariffs, I am now seeking a swing high and for prices to return to the bearish move which started with a spike up to 1.48.

The daily RSI (2) is overbought, and prices formed an inverted hammer candle on Wednesday to suggest the 4-day rebound is already losing steam. Also note that prices are no hugging the 2020 weekly-close high, a historical level of importance.

From here, I am now seeking evidence of a swing high up to or around the high-volume-node (HVN) at 1.4385 and for momentum to turn lower, in line with the lower US-CA 2-year spread.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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