Global macro overview for 21/07/2017:
The dovish comments from Deputy Governor of the Reserve Bank of Australia (RBA) Guy Debelle had an impact on the Australian Dollar. Debelle urged the markets not to read too much into the board's discussion on the neutral rate. He said that "no significance should be read into the fact the neutral rate was discussed at this particular meeting" and "most meetings, the board allocates some time to discussing a policy-relevant issue in more detail, and on this occasion, it was the neutral rate". He also emphasized that "other central banks increase their policy rates does not automatically mean that the policy rate here needs to increase". At the end he added, that the rising Australian Dollar is complicating the economy's adjustment, so appreciation of AUD is not welcome, despite the fact, that recent data has given the RBA a little more confidence in the economy.
The recent economic data from Australia was better than expected. The unemployment rate is low, full-time employment is increasing, wages are on the rice together with the inflationary pressures which are way above the RBA projections. In this situation, a further improvement of the economic conditions may encourage the Reserve Bank of Australia to change the course of monetary policy, so it might start to signal a willingness to increase the interest rate sooner than global investors expect. This will in return cause an appreciation of the Australian Dollar across the board, however, this is not that much welcome according to Debelle.
Let's now take a look at the AUD/USD technical picture after the news release. Debelle's comments initiated a pullback from the recent highs at the level of 0.7988 and it looks like the market wants to test the technical support at the level of 0.7838. The overbought market conditions and clear bearish divergence support this view.
