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Daily Observations: August 05, 2013

Daily Observations: August 05, 2013

Christopher Vecchio, CFA, Senior Strategist

Current Positions:

- Short AUDUSD (1/2) at net 0.9192, Stop at 0.9170, Target 1 at 0.9045, Target 2 at 0.8960, Target 3 at 0.8770, Target 4 at 0.8545

Closed Positions:

- Short AUDUSD (1/) from net 0.9192 at 0.8960 for +232-pips; full-size position gain of +116-pips

Typical Time Frame: 1-day to 1-week

Little has changed in the wake of the July US NFPs on Friday. One constant remains: the Australian Dollar remains weak. In fact, among the four components of the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR), the Aussie is the only major to have lost ground against the US Dollar post-NFPs.

The early part of this week will mark a turning point for the Australian Dollar, as the Reserve Bank of Australia is set to announce the results of its August policy meeting on Tuesday. Ahead of the announcement, Credit Suisse Overnight Index Swaps suggest a 91% chance of a 25-bps rate cut, so if anything risks are skewed to the upside (hawkish commentary would be a surprise needless to say).

I suspect that guidance issued by RBA Governor Stevens will be dovish however, taking on a similar tone to what he said last Tuesday. He noted that the inflation outlook remains dampened substantially, and isn't at risk for overheating "short of a very, very large depreciation, which of course we haven't yet seen."

Translation: the ~15% decline since mid-April doesn't even qualify as a "very, very large depreciation," and the Australian Dollar could decline much further before it becomes a concern. 'Don't fight the Fed' applies here: don't fight the RBA.

Are you new to FX or curious about your trading IQ?

As always, any other trade ideas and general macroeconomic musings can be found in the DailyFX Real Time News feed, or by following me on Stocktwits/Twitter @CVecchioFX.

I also host a weekly Live Trading Q&A in DailyFX Plus, on Tuesdays at 06:00 EDT / 10:00 GMT, in which I delve deeper into my positions and thought processes behind my analyses.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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