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AUD Poised For Intraday Volatility On Torrent Of Top-Tier Data

Fundamental Forecast for Australian Dollar: Neutral

  • AUD/USD Swings Within Its Trading Band At The Mercy Of General Risk Trends
  • Top-Tier Economic Data May Catalyze Intraday Volatility Yet Limited Follow-Through
  • Positive Cues From Risk Sentiment May Be Offset By Elevated Volatility Expectations

The Australian Dollar kept traders in suspense over the past week as it swung at the mercy of its counterparts and broader risk appetite. The coming week will bring a medley of top-tier local economic events including the RBA decision, jobs numbers, manufacturing survey figures, building approvals and trade data.

The abundance of domestic releases holds the potential to catalyze plenty of intraday volatility on surprise readings. However, the scope to deliver a lasting impact on the Aussie may be limited amid steadfast RBA policy expectations.

The central bank is widely anticipated to once again leave rates on hold when it meets on Tuesday. Moreover, recent data suggests the Board will deliver another rehashed statement that notes the need for a ‘period of stability’ for rates.

Until we see consistent signs of improvement in the local labour market the Reserve Bank is likely to retain its highly accommodative stance over the near-term. Yet further rate cuts remain off the cards for the time-being, given the need to manage risks posed by speculative lending in the housing market. A lack of fresh insights into policy makers’ thinking is likely to leave the AUD to take its cues from elsewhere.

An improvement in general risk appetite may offer the high-yielding currency a source of support. This is amid the concerns over Ebola and slowing growth in Europe being overshadowed by healthy US economic data. Yet implied FX market volatility remains elevated near its October peaks, suggesting traders are anticipating some large swings to occur in the market over the near-term. This in turn detracts from the carry appeal of the AUD.

Heavy selling pressure remains evident at the 89 US cent barrier, which may limit the scope for a recovery for AUD/USD. Meanwhile, the downside risks remain centered on the pair’s 2014 lows near 0.8660. For insights into the US Dollar side of the equation read the weekly forecast here.

Written by David de Ferranti, Currency Analyst, DailyFX

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