The 8.5% decline in gold from its mid June highs further confirms that the yellow metal remains in function of Gold/EUR dynamics and no longer an inverse play off the US dollar

Aussie faces downside against EUR, GBP, CAD and to a lesser extent AUD

The Reserve Bank of New Zealand is expected to raise its overnight rate by 25-bps (21:00 GMT) for the 1st time since the 2008-9 easing campaign.

The 8.5% decline in gold from its mid June highs further confirms that the yellow metal remains in function of Gold/EUR dynamics and no longer an inverse play off the US dollar. The bulk of the Q1 gains in gold was largely a result of the sovereign Eurozone fears by European fund managers, which spilled over onto higher Gold against all other currencies. As the Eurozone sovereign uncertainty fades under improved Eurozone data and mixed US reports, the unwinding of gold’s rally may be here to stay. Gold/USD trades at only $15 above its 200-day MA of $1,147/oz. A break below it would be the first breach of the 200-day MA since January 2009, in which case would bring $1,080 in focus.

Today’s softer than expected Aussie Q2 inflation figures cement the expectation of RBA rate hikes remaining on hold the rest of the year. Despite all the recent fanfare of the Aussie emerging on the heels of rallying equities, the currency faces downside against EUR, GBP, CAD and to a lesser extent AUD.

Q2 trimmed mean CPI slowed to 2.7% q/q from 3.0% in Q1, the lowest pace in 3 years. The case against further tightening is clearly made by the fact that the trimmed mean CPI has slowed for the last 6 consecutive quarters. And with the overnight rate standing at 4.50% following 150-bps of tightening, forward-looking FX markets may grow reluctant to push Aussie above key technical levels.

AUDUSD’s climb above the 200-day MA for the first time in 2 months is proving short-lived as the pair retreats back below 0.9070. The more relevant trend line resistance extending from the April 14 high has yet to be breached. Meanwhile, any retreat in risk appetite is likely to extend AUDUSD losses towards 0.8840 trend line support, followed by sturdier foundation at 0.8620.

But rather than emphasizing on downside risks in AUDUSD, there’s a more appealing argument for favouring EURAUD and GBPAUD, considering the improved macro and earnings reports from the Eurozone and the UK.

BoE Governor King’s attempts to highlight the downside risks in today’s Parliamentary testimony were offset by Andre Sentence hawkishness and the recent positive UK figures. EURAUD is supported by a double bottom support and bullish oscillators (slow stochastics), eyeing preliminary upside at 1.4670s, before key resistance at 1.4940-50. GBPAUD attempts to break above the 1.7390 trend line resistance (extending from July 6 high), a break of which to extend recovery towards 1.75 and 1.7670.

RBNZ Rate Hike The Reserve Bank of New Zealand is expected to raise its overnight rate by 25-bps (21:00 GMT) for the 1st time since the 2008-9 easing campaign. NZDUSD is already fallen by a full cent from yesterday’s 6-month high of 0.7394, eyeing interim support at 0.7170. Losses would extend particularly in the event of a weak Wednesday equity close in NY. AUDNZD emerges as a play of contrasts, with RBA tightening cycle making its way back to neutral territory and the RBNZ further withdrawing its stimulus. AUDNZD’s 5-week consolidation eyes a possible break down to 1.2160, with the announcement effect of a RBNZ rate hike likely to trigger the bulk of the move.