Fundamental Forecast for Australian Dollar: Neutral
- AUD/USD Technical Analysis: Bears Retest Trend Channel Top
- Aussie Drops as Soft Economic Data Boosts RBA Rate Cut Bets
Capitalize on Shifts in Market Mood with the DailyFX Speculative Sentiment Index.
The Australian Dollar recorded the largest 5-day decline in close to two years last week, closing near the lowest level since September 2010 against its US namesake. Looking ahead, another volatile outing looks likely as the economic calendar fills out with an ample supply of high-profile event risk.
Needless to say, the spotlight is on the monetary policy announcement from the Reserve Bank of Australia. Economists’ forecasts point to a 25bps cut in the benchmark lending rate and markets appear to agree, with traders pricing in a 91 percent probability of such an outcome. This suggests the cut itself may not prove market-moving, with markets more interested in the guidance offered for the months ahead.
Meanwhile, the latest COT report from the CFTC shows that net speculative positioning continues to stabilize having hit a record high. This hints at a deceleration in capital flows feeding the AUD-short trade and suggests the market may be increasingly likely to reverse.
Against this backdrop, an RBA statement that does not explicitly point to the likelihood of another prolonged easing cycle may prompt the markets to default to profit-taking on bets against the Aussie, driving the currency higher.
Rhetoric that leaves a sense of ambiguity surrounding the near-term outlook may make a data-sensitive environment however, suggesting any corrective gains could be capped by a soft July jobs report. The economy is forecast to add 6K jobs, down from 10.3K in the prior month, and the unemployment rate is expected to tick higher to 5.8 percent.
External developments remain of note as well. Last week’s notable response to HSBC’s disappointing Chinese Manufacturing PMI print suggests markets may be watching upcoming official news-flow with significant interest. Chinese Trade Balance, CPI, Industrial Production and Retail Sales figures are all set to cross the wires, with any signs pointing to a deepening slowdown in Australia’s largest export market threatening to weigh on AUD.