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AUD/USD Positioning and Sentiment Ahead of Australian GDP Data

AUD/USD Positioning and Sentiment Ahead of Australian GDP Data

2016-05-31 06:35:00
Ilya Spivak, Head Strategist, APAC
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Talking Points

  • Aussie Dollar may decline if soft GDP data bolsters RBA rate cut bets
  • Established policy bets offer room for volatility on disappointing print
  • Technical, sentiment-based cues argue for bearish bias on AUD/USD

The Australian Dollar is looking to first-quarter GDP figures to inform RBA monetary policy expectations. The report is expected to show the year-on-year growth rate slowed to 2.8 percent. Australian economic news-flow has tended to underperform relative to consensus forecasts over recent months, hinting at the threat of a downside surprise. Such a result may boost near-term rate cut speculation and weigh on the Aussie.

As it stands, priced-in policy bets implied in OIS rates suggest traders envision at least one 25 basis point reduction in the RBA's benchmark cash rate over the coming 12 months. The probability of a cut at next month's policy meeting is priced at a meager 9 percent however. This seems to offer ample opportunity for a weak result to be impactful as portfolios are readjusted to reflect a greater chance of stimulus expansion. On the other hand, an upside surprise may have more muted implications considering an imminent cut is already priced out of the baseline consensus.

On the sentiment side of the equation, the DailyFX Speculative Sentiment Index (SSI) is increasingly net-long AUD/USD, arguing for a bearish bias. This seems to been confirmed technically after prices violated the series of higher highs and lows established from January, hinting that a corrective recovery has been ended and the long-term down trend resumed.

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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