Hawkish RBA And Apple Earnings Send Dollar Lower

As anticipated, the RBA Minutes overnight were incredibly hawkish; highlighting further evidence of both global and domestic economic recovery, and signalling that more tightening was likely to come. More good news for AUD bulls was the RBA’s assessment of the currency at these levels; despite reaching a 14-month high vs. the USD, the RBA seemed unconcerned by the currency’s strength, concluding “The appreciation of the Australian dollar in recent months had reflected the generally improving sentiment in financial markets, the relative outperformance of the Australian economy and the strength of commodity prices.”.

With the USD taking a pummelling with every uptick in risk sentiment, and good news streaming in daily from corporate earnings - the latest talisman being Apple Inc - there seems little barrier either fundamentally or technically to stop the USD weakening to fresh lows. As EURUSD creeps ever closer to the psychologically important 1.5000 level (1.4970 at the time of writing), the next source of good supply doesn’t come into play until 1.5350. Indeed the scope for carry trades has been clearly left on the table, as the NY Fed yesterday clarified that its testing of tools for withdrawing monetary stimulus were nothing more than prudent trials. The release stated that “no inference should be drawn about the timing of monetary policy tightening”, disappointing USD bulls who might have seen this as a step towards US removal of accommodative conditions. Even the threat of verbal intervention has lost its venom in the past few weeks as rhetoric from both sides of the Atlantic has failed to materialize into tangible support for the USD.

Over 40 companies are reporting earnings out of the US today, including Coca Cola, Pfizer, State Street, Black Rock, UAL, Yahoo, and Northern Trust; but despite it being a very mixed bag of sectors, one really has to question whether a disappointing result is going to be enough to stem the declines in the USD from here. It seems we would have to be looking at a serious spate of bad earning from the remainder of corporates, or the potential collapse of another financial firm to rattle investor confidence at this stage. Until we see a convincing break or reversal, as they say, the trend is your friend - which means we continue to sell the USD on rallies.

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