News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
EUR/USD
Bearish
Oil - US Crude
Bullish
Wall Street
Bearish
Gold
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
GBP/USD
Bearish
USD/JPY
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Real Time News
  • Indices Update: As of 16:00, these are your best and worst performers based on the London trading schedule: Germany 30: -0.10% France 40: -0.12% FTSE 100: -0.15% US 500: -0.21% Wall Street: -0.62% View the performance of all markets via https://www.dailyfx.com/forex-rates#indices https://t.co/11CO324Vg7
  • May consumer inflation expectations for the medium term climb to 4% from 3.4% in April.Get your market update from @DColmanFX here:https://t.co/Dsa5Sxn0fU https://t.co/oGStoYQ8qq
  • Heads Up:🇧🇷 Business Confidence (JUN) due at 16:00 GMT (15min) Previous: 58.5 https://www.dailyfx.com/economic-calendar#2021-06-14
  • Technical Levels: #Dollar, #Sterling, #Loonie, #Gold, #Bitcoin, #Oil and more! (Webinar Archive) - https://t.co/0ztuS6u8z7
  • Poll: With volatility deflating across the financial system, left to wonder what phase of the market cycle we are in currently. What stage do you think we are in right now? (https://www.dailyfx.com/forex/fundamental/article/special_report/2019/02/05/Market-cycle-phases.html)
  • Forex Update: As of 14:00, these are your best and worst performers based on the London trading schedule: 🇳🇿NZD: 0.28% 🇦🇺AUD: 0.20% 🇨🇦CAD: 0.19% 🇬🇧GBP: 0.01% 🇨🇭CHF: -0.11% 🇯🇵JPY: -0.24% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/rKGivnA7az
  • Indices Update: As of 14:00, these are your best and worst performers based on the London trading schedule: FTSE 100: 0.37% France 40: 0.32% Germany 30: 0.09% US 500: -0.19% Wall Street: -0.43% View the performance of all markets via https://www.dailyfx.com/forex-rates#indices https://t.co/QYj0laANXU
  • ECB's Villeroy says stimulus will be at least as prolonged as Fed's
  • This week opens to anticipation for Wednesday's FOMC decision, but conditions may charge short-term volatility. DailyFX Chief Strategist @JohnKicklighter discuss for Monday! https://t.co/iOgZWpiFE5
  • Commodities Update: As of 14:00, these are your best and worst performers based on the London trading schedule: Oil - US Crude: 0.92% Silver: 0.11% Gold: -0.56% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/lDnyXGE5LI
Traders Skeptical That RBA Will Cut Rates, How Will AUD-USD React?

Traders Skeptical That RBA Will Cut Rates, How Will AUD-USD React?

John Kicklighter, Chief Strategist

Talking Points

  • The RBA has cut rates a few times this year, but recently the policy approach has been a warning
  • Swaps show the market pricing in a 44% probability of a cut today
  • Traders I polled in Twitter put the probability of a cut even lower at 31%

See how retail traders are positioning in the majors in your charts using the FXCM SSI snapshot.

We are extending a trend of monetary policy-directed event risk that has gained traction these past two weeks with an RBA rate decision Tuesday. This particular meeting will carry as much market-moving potential as the RBNZ, ECB and perhaps even the Fed meetings that have come before it. That potential is derived from the lack of conformity to expectations and the intensity with which the market is focusing on monetary policy as a primary fundamental driver for the market.

Market Expectations

The impact of an event risk like this depends heavily on the market’s expectations going into the event. The more significant the contrast between forecasts and outcome, the greater the adjustment needs to be as people reposition and reprice. So, to gather traders’ expectations via social media, I conducted a poll on Twitter. As you can see below, by the time the tally hit 145 votes, the consensus became clear. A robust 69 percent expected the RBA to hold its benchmark rate at 2.00 percent. That compares to 31 percent who expected them to cut 25 basis points to 1.75%.

Traders Skeptical That RBA Will Cut Rates, How Will AUD-USD React?

The retail trading ranks seemed to be more neutral than the financial system. Looking to swaps, we find the probability of a 25 bps cut to 1.75 percent was given a 44 percent probability. However, it should be said, that this outlet has sported a more dovish view of the RBA’s policy path for some time. That doesn’t mean it is ‘wrong’, as we garner from the central bank’s actual policy of keeping the door open to future rate cuts.

Traders Skeptical That RBA Will Cut Rates, How Will AUD-USD React?

Looking further 12 months out, meanwhile, the forecast has remained relatively steady around pricing 50 bps worth of easing. That is still one of the more dovish leans among central banks that still have room to cut rates – versus those that have to resort to outright QE programs.

Traders Skeptical That RBA Will Cut Rates, How Will AUD-USD React?

Market Positioning

In contrast to the modest bearish expectations, FX traders positioning measured by the Speculative Sentiment Index (SSI) seems to draw an exceptional contrast to fundamentals. There are nearly double the number of long positions to those that are short. And, long positions – as can be seen below – are near their highest levels of the past year.

Traders Skeptical That RBA Will Cut Rates, How Will AUD-USD React?

We can see the same positioning extreme against the AUDUSD’s price action. The consistent net-long view contrasts a trend that has remained broadly bearish throughout the same period. This is likely due to traders hoping to catch the volatile corrections that can occur in counter-trend moves. But such moves are infrequent. In this case, should the RBA hold rates; it is unlikely to generate much in the way of optimism for the Australian Dollar beyond covering some overzealous short views. Against a Dollar which is backed by a Fed actually contemplating a hike, it doesn’t really register.

Traders Skeptical That RBA Will Cut Rates, How Will AUD-USD React?

From another speculative positioning measure, the Commitment of Traders’ reading shows futures traders remain net short, but they are not built up with the same intensity that price seems to reflect. That may be a similar speculative contrast as the SSI, but with less of the extreme that the short-term view of the retail FX trader often works with.

Traders Skeptical That RBA Will Cut Rates, How Will AUD-USD React?

Scenarios

With the upcoming RBA decision, there are a few likely outcomes. In the most extreme ‘bullish’ outcome, the RBA not only holds rates, but further closes the door to further rate cuts. If that is the case, it will be important to choose a pairing that strongly reflects the level of ‘hawkish’ that this represents. It is really only a ‘neutral’ shift, so AUDUSD would be a poor contrast. However, something like EURAUD or AUDNZD are reasonable pairings.

On the other end of the scenario table is an outcome where the RBA surprises with a rate cut. That would be the outcome most likely to generate volatility as it finds the fewest people speculating on its realization. Choosing a counterpart that is a hawkish contrast is important. AUDUSD or GBPAUD offer the greatest juxtaposition while a pairing against the stimulus-oriented Euro or Yen would be a poor foundation

In the event that the outcome is middle of the road, whereby they hold rates but suggest a further cut is a possibility still be considered; choosing a pairing on the extreme opposite end of the monetary policy spectrum is all the more important. Seeing a mild bullish or dovish response first and then giving the fundamental gearing can help take advantage of the contrast.

Traders Skeptical That RBA Will Cut Rates, How Will AUD-USD React?

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES