FX Watch: AUD/USD, USD/SGD
While US markets were off for holidays to start the week, the record closing high in European equities continues to reflect investors’ inclination in taking on risks.
Overview
While US markets were off for holidays to start the week, the record closing high in European equities continues to reflect investors’ inclination in taking on risks. As US tariff risks were placed off the table for now with a delay to Q2, the prospects for higher defence spending across the European region and hopes of a potential peace agreement in Ukraine have been tapped on as welcoming news for the bulls, with strong upside momentum visible in European defence stocks.
On the calendar ahead, attention will be focused on the Reserve Bank of Australia’s (RBA) rate decision, which may mark the central bank’s first rate reduction in four years.
AUD/USD: RBA rate decision as key event ahead
Heading into the upcoming RBA meeting, market expectations are heavily priced for a 25 basis point (bp) rate cut, so the focus may be on the pace of further cuts ahead, with market participants looking for cumulative 75 bp worth of easing through 2025. The basis for any rate cut today may stem from its trimmed mean inflation rate on track to move into its inflation target band, along with easing wage pressures, but messaging from policymakers may likely retain some caution as labour conditions remains resilient and trade uncertainties remain. A less-committal policy stance and emphasis on more data-dependency ahead may aid to underpin the AUD/USD on a more gradual pace of rate-cutting path.
The AUD/USD has revealed initial signs of a trend reversal, with the formation of new higher high and higher low since the start of the year. Its daily relative strength index (RSI) has also reverted back above its midline, which reflects bulls in broader control. Any near-term weakness may leave the formation of a new higher low on watch for some accumulation of longs, which is likely to be at the 0.628 - 0.630 range.
USD/SGD: Room to stabilise for now but broader trend remains down
The USD/SGD has since retraced close to 2.7% from its January top, with the switch to lower-highs-lower-lows formation leaving the bears with the upper hand for now. Its daily RSI is also trading back below its key 50 level, with a recent retest of its midline finding some resistance. While there may be room for the pair to stabilise this week around the 1.337 horizontal level of support, any bounce may leave us watching for the formation of any lower high, potentially around an upper channel resistance at the 1.354 level, for a resumption of its bearish trend.
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