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AUD rebounds heading into RBA while USD and indices falter

CMC Markets

With US indices and USD failing to build on Friday’s payrolls driven rally, the main focus of today’s trading is on Australia and the RBA. For the last month, AUD has been under heavy selling pressure falling NZD lower in reaction to a rising USD and bearish central bank comments. Both Governor Stevens of the RBA and Governor Wheeler of the RBNZ have been talking their Dollars down but while Governor Stevens has threatened to intervene, Governor Wheeler has actually stepped in and done it selling NZD down to the tune of several hundred million dollars. In the last week, both NZD and AUD have stabilized with NZD reaching levels similar to where they bottomed after the last RBNZ intervention in 2013, suggesting that once again, the RBNZ may be close to finishing its intervention program for now. This sets the stage for today’s RBA meeting. While no change to interest rates appears likely, any comments related to the value of AUD or talk of intervention (or not) could have a big impact on trading. The RBNZ has now given the RBA cover to intervene should it wish, leaving the question of whether it will follow the RBNZ’s strategy of active intervention, the Bank of Canada’s policy of no intervention, or chart a middle course of talking the Dollar without actually intervening. With AUD depressed, technically oversold and starting to stabilize, expectations appear to be that the RBA may take more aggressive steps to talk the dollar down or possible intervene. If Governor Stevens does not take his rhetoric or action to another level, AUD could rebound particularly with USD starting to ease back. After a big week last week, this week is pretty slow for US news. Without new developments to keep the rally going, USD pulled back in a normal trading correction and after an early last hurrah, US indices did the same. The correction in stocks may continue through to Alcoa’s earnings report which may provide them with some direction while USD may continue to drift. China news doesn’t start until a bit later in the week, but the Hang Seng could be active today on increases or decreases in protest activity. Economic News Significant announcements released overnight include: Canada Ivey PMI street 52.5 vs previous 50.9 Germany factory orders (5.7%) vs street (2.5%) Germany construction PMI 50.0 vs previous 47.7 Germany retail PMI 47.1 vs previous 49.4 Upcoming significant announcements include: 8:30 am AEST Australia construction PMI previous 55.0 1:30 pm AEST Australia interest rate 2.50% no change expected, comments on AUD may have bigger impact 3:00 pm AEST Japan leading index street 104.0 3:00 pm AEST India service PMI previous 50.6 7:00 am BST Germany industrial production street (0.5%) 9:00 am BST Norway industrial production previous (2.8%) 9:30 am BST UK industrial production street 2.6% 9:30 am BST UK manufacturing production street 3.4% 8:30 am EDT Canada building permits street (6.5%) US Treasury secretary Lew plus Fed Kocherlakota, Dudley and Potter speak through the day. Note that today’s technicals include our usual weekly updates