FX Perspective

From the FXWW Chatroom – AUD/USD approached the RBA statement around 0.7170/75, having rallied over the day from under 0.7140, supported by interest rate markets which trimmed pricing for a rate cut today from 11bp to 8bp. There was a dip just ahead of the statement to as low as 0.7110, followed by very volatile trade on the release, printing a high of 0.7210. The Aussie then chopped around 0.7160/75 for a while before rallying to 0.7190/0.7200. 


AUD where to from here? 
Short term there should be upside on AUD/USD towards resistance around 0.7235. There was enough priced in for Nov and enough new doubt over the chances of another rate cut at any time to support AUD’s yield appeal. While the RBA introduced ”scope for further easing of policy”, this would only be used if growth disappoints, in contrast to the RBA’s view that “prospects for an improvement in economic conditions had firmed a little over recent months.” Pricing for a Dec rate cut can easily fade from here, supporting AUD on crosses. 

Multiweek AUD/USD will continue to find the 0.73 handle difficult to sustain given ongoing pressure on commodity prices and the related lack of momentum in China’s industrial sector. Moreover, pricing for a Fed rate hike in Dec will support USD for now. The potential breakout pair for AUD however is AUD/NZD, especially if the dairy auction today produces a soft outcome. There looks to be scope for a run at 1.08, with fair value considerably higher. [Westpac] 

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