Daily Report: Aussie Firm after GDP, BoJ on Hold, BoC Next

Australian dollar is lifted mildly by stronger than expected GDP data and rebound in stocks in Asian session. The RBA statement yesterday basically indicates that the bank will be on hold for a while and there is no intention for rate cut yet. And the view is affirmed by today's GDP data, which showed 1.2% qoq expansion in Q2 versus consensus of 1.0% qoq. Meanwhile Q1's contraction was also revised from -1.2% qoq to -0.9% qoq. Asian equity indices are also broadly higher as DOW managed pare much earlier loss to close down -100pts only overnight.

BoJ kept monetary policies unchanged as widely expected today. Interest rates is kept at 0-0.1% while the asset purchase program was kept at JPY 50T. The vote was unanimous. In the accompanying statement, the bank said that the virtually zero interest rate policy will continue until "price stability is in sight on the basis of the understanding of medium- to long-term price stability." While the bank refrained from adding stimulus this time, it's believed that BoJ is just waiting to see how this month's FOMC meeting affects markets and after the new government settles before acting.

BoC will be a main focus today. Recent headwind in global economic outlook should deter BOC's tightening schedule. We believe the central bank will leave the policy rate unchanged at 1% in September. Indeed, Fed's decision to keep interest rates at exceptionally low levels at least until mid-2013 and the increasing downside risks to inflation signaled the BOC will leave the overnight rate unchanged at least until mid -2012. That said, it's also unlikely for the central bank to trim interest rates as headline inflation remains high and the job market is robust. 

On the data front, UK BRC shop price index rose 2.7% yoy in August. Japan leading indicator rose to 106 in July. Australia Q2 GDP expanded 1.2% qoq. UK industrial and manufacturing production are both expected to be flat mom in July. German industrial production is expected to rose 0.5% mom in July. Canada Ivey PMI is expected to rise slightly to 46.7 in August. Fed will also release the Beige Book economic report.

AUD/CAD's long term up trend is still intact and is possibly resuming. Near term focus will be on 1.0555 resistance and break will confirm up trend resumption. However, note that the cross has been losing upside momentum as seen with bearish divergence condition in weekly MACD. Thus, even in case of strong rise, we'll be cautious on reversal signal as AUD/CAD approaches 100% projection of 0.9605 to 1.0555 from 0.9913 at 1.0863. 

AUD/USD Daily Outlook

Daily Pivots: (S1) 1.0434; (P) 1.0530; (R1) 1.0580;

AUD/USD formed a temporary low at 1.0481 and recovered. Intraday bias is turned neutral for the moment. So far, we're still favoring the case that corrective rebound from 0.9926 is over with three waves up to 1.0764. Hence, we'd expect the current recovery to be limited below 1.0764 and bring another fall. Below 1.0481 will target 1.0314 support first. Break will target a test on 0.9926 low. Nevertheless, break of 1.0764 will invalidate this view and bring stronger rise towards 1.1079 high instead.

In the bigger picture, rise from 0.8066 has completed with bearish divergence in daily MACD at 1.1079. However, AUD/USD is staying well inside long term rising channel from 2008 low of 0.6008. Hence, there is no indication of trend reversal yet and the price actions from 1.1079 are viewed as a correction only. Hence while deeper decline would be seen to long term channel support and possibly below, we'd expect strong support from 0.9404 resistance turned support to contained downside.