Daily Technical Analysis

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As universally expected, the FOMC raised its target range for the federal funds rate by 25 bps at the conclusion of its policy meeting today. But the tightening cycle likely is not over yet as the FOMC noted that it “anticipates that ongoing increases in the target range will be appropriate”.

The FOMC said that “inflation has eased somewhat’” which Chair Powell reiterated in his post-meeting press conference. But he also noted that the committee “has more work to do” in terms of monetary tightening to bring inflation back to the FOMC’s target of 2% on a sustained basis. Powell also stated that policy will need to be restrictive for some time.

We look for the FOMC to hike the fed funds target rate by 25 bps each at its next two policy meetings. That said, we do not have a high level of conviction regarding the exact amount of tightening that the Committee will need to deliver. The FOMC is in the fine-tuning stage of its tightening cycle, and future rate hikes will depend on incoming data in coming weeks and months.

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The National Bureau of Statistics China released PMI data this week which shows both the manufacturing and services sector are expanding.

Appetite for risk has enjoyed a great to start to the year, mostly thanks to China reopening and abandoning their covid-zero policy. It was a key reason as to why the International Monetary Fund chose to not downgrade global growth forecasts for the first time in a year, and tentatively call for a ‘turning point’ in the global economy. And that is so far being backed up by data coming for China.

This week we have seen four headline PMI survey released covering manufacturing and services, three of which have beat expectations and expanded. If PMI’s are above 50 is denotes expansion and I favorable for growth prospects in the future. Admittedly manufacturing is the laggard as the NBS print only expanded by 50.1, yet both service PMI’s accelerated higher.

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The RBA are expected to rise interest rates by 25 bp to 3.35% tomorrow, which would take rates to their highest level since September 2012. If so, it would be their fourth consecutive 25bp hike and ninth back-to-back hike this cycle – which is their most aggressive in history. Even so, their rates remain well below RBNZ’s 4.25% and Fed’s 4.75%, both of those central bank started hiking considerably sooner than the RBA, and continue to battle high levels of inflation.


Unemployment is 3.5% compared with the RBA’s 3.4% forecast in November, but this is not likely a large enough deviation for it to matter, and employment numbers are robust overall. Wage prices are on target at 3.1% q/q, but inflation is a fly in the ointment for the RBA.


According to a Reuters poll, 30 out of 31 economists expect a 25bp hike to 3.35% tomorrow, up from 23 out of 27 in January. 19 out of 30 see the cash rate peaking at 3.6%, but there is a greater chance of it eventually rising above 4% than the consensus currently estimates. US inflation peaked in July yet the Fed are still hiking, and inflation in Australia has not yet peaked. And whilst China’s reopening has brought with it cheers of a soft landing, it is also inflationary which could see CPI reaming higher and stickier than anticipated later this year. And whilst the employment situation remains robust and inflation remains high, it’s a green light for the RBA to continue hiking.


The Aussie took quite a battering on Thursday and Friday following the Fed’s meeting and strong NFP report, and fell -3.7% from its YTD high by Friday’s close. There’s been a mild attempt move lower today, but we’ve seen the meat of the downside move for now. And with the RBA tipped to hike tomorrow, this leaves the potential for AUD/USD to post a countertrend move ahead of the meeting – with its fate to then be decided by the level of RBA tightening.




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25bp Hawkish Hike from the RBA
The RBA hiked the cash rate target by 25 basis points to 3.35%


Underlying inflation was above expectations to 6.9%


Strong domestic demand is adding to the inflationary pressures
CPI is expected to decline this year due to global factors and slower growth in domestic demand
Medium-term inflation expectations remain well anchored, and it is important that this remains the case
The labor market remains very tight


Wages growth is expected to continue picking up due to the tight labor market and higher inflation


The board will continue to pay close attention to labor costs and the price-setting behavior of forms in the period ahead.


The RBA hikes the overnight cash rate by 25bp to 3.35% – its highest level since September 2012 – and warned of further increases in the months ahead. The two key words here are ‘increase’ and ‘months’ as it implies more than one hike over the coming months. And with rates at 3.35% it means the market pricing and consensus among economists for a terminal rate of 3.6% is not correct.


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Fed Chairman Powell continued with his less hawkish commentary today. He started by noting once again that the disinflationary process has started, but it will be bumpy. He also noted that it will be a long process. As a result, the US Dollar initially sold off while stocks moved higher. He said that the surprise in the 517,000 Non-Farms Payroll print proved that it would be a bumpy road. Exactly how long of a process will it be ? Powell said that 2023 will be a year of significant inflation declines and that it will probably take into 2024 to get inflation back down to the 2% target.


The US Dollar Index initially sold off as Powell stuck to the script of the disinflationary process starting. Markets saw this as dovish. Notice that the DXY fell to the gap opening from the past weekend and the support held. However, once it became clear the NFP report did nothing to affect the outlook of the Fed, the DXY moved higher towards the unchanged level from when Powell began speaking. In all, the DXY fell from 103.65 down to 103.00 within 30 minutes, then reversed and bounced all the way back over the next 1 hour.


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NZD/USD appears to be stuck in a narrow range as it holds above the weekly low, but the exchange rate may struggle to retain the advance from the January low as it fails to trade back above the 50-day SMA.

Unlike the price action in January, NZD/USD has not responded to the positive slope in the moving average, and the decline from monthly high may lead to a potential shift in the near-term trend if the exchange rate fails to defend the opening range for 2023.

Looking forward, it remains to be seen if the U. of Michigan Consumer Sentiment survey will influence NZD/USD as the update is anticipated to show a further improvement in household confidence, and a positive development may generate a bullish reaction in the US Dollar as it raises the Federal Reserve’s scope to pursue a more restrictive policy.

However, the update to the U. of Michigan survey may do little to sway the US monetary policy outlook as the CME Fed Watch Tool shows a greater than 90% probability for another 25bp rate hike next month, and speculation for an imminent change in regime may continue to curb the appeal of the Greenback as the Federal Open Market Committee emphasizes that ‘shifting to a slower pace will better allow the Committee to assess the economy’s progress toward our goals’.

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EUR/USD traded as low as 1.0612 and is currently correcting losses.
A key bearish trend line is forming with resistance near 1.0685.
GBP/USD is struggling below the 1.2120 resistance zone.
Gold price is attempting an upside break above the $1,840 resistance.

The Euro remained in a bearish zone below 1.0800 against the USD. EUR/USD extended its decline below the 1.0700 level to move further into a bearish zone.
There was a clear move below the 1.0650 support zone. The pair traded as low as 1.0612 and is currently correcting losses. There was a minor increase above the 1.0640 and 1.0650 resistance levels.

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Australia’s ASX 200 index fell by -12.7 points and currently trades at 7,338.80
Japan’s Nikkei 225 index has fallen by -37.31 points and currently trades at 27,494.63
Hong Kong’s Hang Seng index has fallen by -207.23 points and currently trades at 20,679.73
China’s A50 Index has fallen by -31.48 points and currently trades at 13,679.43

UK and Europe:-

UK’s FTSE 100 futures are currently down -6.5 points, the cash market is currently estimated to open at 8,007,81
Euro STOXX 50 futures are currently down -6 points, the cash market is currently estimated to open at 4,265.18
Germany’s DAX futures are currently down -5 points, the cash market is currently estimated to open at 15,472.55

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The Reserve Bank raised the official Cash Rate by 50 basis points to 4.75%, and maintained its projection of a 5.5% peak in the coming months. There was almost no change to the projected OCR track compared to the November policy statement. The OCR is still expected to peak at 5.5% in the middle of this year, and to fall only gradually from late next year.


We had expected a modest lowering of the OCR track, given that recent inflation outcome haven’t quite lived up to the very strong assumptions that the RBNZ had made. The options that the Monetary Policy Committee considered this time were between a 50bp and a 75bp increase. The Committee went for the smaller move, noting that the upside risks to inflation had lessened since the November review.


The Committee judged that the effects of the cyclone did not materially alter the outlook for monetary policy over the medium term. However, it is still early days in terms of assessing the scale of its impact, particularly in terms of the amount of rebuilding work it will generate.


The Committee’s current assessment is that over coming weeks, prices for some goods are likely to spike and activity will be weaker than previously expected. Export revenues will be negatively impacted. Monetary policy is set with a medium-term focus, and the committee will look through these short-term output variations and direct price effects.


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In their January meeting, Fed officials agreed to continue rate hikes until high inflation is controlled.


The Fed is still attuned to the risk they may have to do more to keep inflation falling, a hawkish tilt that may come into more precise view when policymakers issue new interest rate and economic projections at a meeting in four weeks.


Economic data since the last meeting show the economy growing strongly and adding jobs at an unexpectedly rapid pace, but inflation remains well above the Committee’s longer-run goal of 2% and the labor market remains very tight.


The Federal Reserve released the minutes from its latest policy meeting on Wednesday, which revealed that a solid majority of Federal Reserve officials agreed to raise the target range of the federal funds rate 25 bp.


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