AUD/USD: Will They or Won’t They?

The weekend saw China cut rates which drove the Yuan down to its lowest levels against the USD since October 2012. Just the same old story of trying to be the first currency to the bottom. Weak currency aids economic growth blah blah blah. Oh but it’s okay because the US is starting an economic recovery! …Yeah, naa.

The impact of China’s cut on the Aussie has been fairly limited to start the week as it basically depends on whether markets regard the rate cuts as a sign of weakness to stem further slowdown, or encourage renewed growth. A chunk of Chinese PMI’s all beat expectation but it is the Chinese random number generator so there are a million excuses as to why growth isn’t all it’s cracked up to be.

Basically, the Aussie doesn’t give a shit at the moment. It’s all about today’s rates decision at home.

audaily

Old mate Terry McCrann which I think the whole financial Twittersphere is sick to death of hearing, has come out and said that in his 50% right, 100% of the time type of insider opinion, that the RBA is bang on to keep rates on hold for another month. Make of that what you will…

All the big banks are split fairly evenly down the middle on whether it will be a curt this month or the following, but general consensus is that either way there will be an easing bias which should at least give us a spike down in AUD/USD.

Australian cash rate futures currently put the odds of a 25bps cut just over 50%. In each scenario I go through, I just can’t see the Aussie not making new lows by the end of the week. BUT with a spikey, up down route on the way down which I don’t want to be involved in straight away. There just isn’t a clear yes or no which will give us a hard directional move.

As you can see on the chart above, price is relatively low already (sitting around it’s support zone anwyway). I think the risk is getting short going into the decision, then we rally hard on a no cut decision which would stop me out before making new lows once the market digests what they have actually said.

Rates are going down. Whether it’s this month or next, they’re going down. As I said in my weekly trade preview, I’m done playing the contrarian and going with the flow. For now the flow is very much to the downside.

The lowest risk play is to look at selling rallies.

Or just get short going into the decision and if you’re right then join the barrage of Terry McCrann abuse once he’s finally caught out as a mug…

Dane Williams – @danewilliamsau

 

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