RBA keeps rates steady after 11 hikes, DAX breaks out

AUD/USD slipped after the Reserve Bank of Australia kept rates steady after 11 consecutive hikes. Aussie losses were limited by central bankers paying lip service to future hikes and a soft dollar beleaguered by a report showing a 3-year low in US manufacturing activity. Wall Street posted a fourth successive day of gains on Monday. The Dow reached a 6-week high as UK and European indices rose in concert. The pound and euro printed outside day patterns in a sign of renewed strength, while oil held onto its big early gains.

Key Factors for Today

- European markets to open higher
- US futures point to a lower start on Wall Street
- Asian markets trade mostly higher on Tuesday
- AUD/USD dropped after the RBA paused rate hikes
- Tesla shares fall after quarterly deliveries report
- UFC merges with WWE to form a new company

Market movers

- Crude oil futures finished near highs of the day, +6%
- FTSE 100 breaks over 7,700
- DAX 40 closes at its highest in a year
- Gold bounces off the lows, rises over $30 per oz
- GBP/USD puts in highest close since December
- AUD/USD breaks out to over 1-month high

Econ Calendar

- German Trade Balance (7 am)
- US Factory Orders (3 pm)
- BOE’s Pill speech (5.30 pm)
- Fed’s Cook speech (6.30 pm)

Earnings

- Acuity Brands Inc
- NovaGold Resources Inc
- Saga plc
- Kirkland’s inc

US dollar already breaking lower before RBA pause

The kneejerk reaction to the RBA decision to pause its rate hikes has been to sell the Aussie dollar, but some of that might be profit-taking after a big breakout move on Monday. The dollar turned lower against most major currencies in reaction to ISM manufacturing PMI data reaching its lowest in nearly three years. The weakness in US manufacturing is giving further credence to the idea of an imminent US recession, which in turn is raising serious questions about how far the Fed can raise rates.

The reaction is the US dollar was fierce with many currencies at or through major resistance levels, indicative of new uptrends. GBP/USD is right back at 1.245 - the top of the 600-pip range that has been in place since mid-December. A breakout would imply a retest of 1.30 and possibly higher. The Aussie and New Zealand dollars were the other notable beneficiaries with both breaking out of triangle patterns to the upside.

Stock markets have already been beneficiaries and continue to benefit from an environment that includes a weaker US dollar and lower bond yields. Germany’s DAX 40 held onto its breakout to 1-year highs at the start of the week, implying a possible re-test of the 2022 all-time highs. Likewise, the FTSE 100 is back into the major resistance zone of 7700 to 7800 that has been in place going back to 2018.