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RBA cut rates to historic low
AUD traders price in rate cut from weak inflation data
After 3 heavy weeks of selling the Aussie is likely to remain a bearish candidate to sell into any rallies. The initial trigger was weak inflation data at the end of April, which was promptly followed by a rate cut and significantly lower inflation forecasts for the RBA.
The rate cut itself was pretty much a 50/50 but it was the lower inflation forecasts which was the sucker-punch for Aussie bulls that day. Up until late-April large speculators, leveraged funds and asset managers had all piled into bullish bets for the Aussie so we all caught off guard, helping push AUD down over 5 cents in 3 weeks.
It is hard to imagine what the minutes would need to say in order to surprise traders as much as the lower inflation forecasts did. So I am leaning towards it being a non-event, leaving Thursday’s employment data to be the data set with potential to sink AUD even lower.
Unemployment wasn’t expected to drop to 5.7% so suddenly leaving it vulnerable to a tick or two higher; Now traders have itchy trigger-fingers on the sell button for AUD, it would only take a minor upwards revision to AUDUSD plummeting once more.
Now firmly below the 74c handle and resting above 0.726 support the Aussie trades cautiously as we await for news flow to hit traders desks.
The quiet start to the isn’t helped by ‘Whit Monday’ as Germany, France and Switzerland have Bank Holidays. Data from US today is also light today but Tuesday and Wednesday presents US inflation, housing and industrial production along with Japanese GDP. So plenty of oversees action to tide traders over until Thursday’s RBA minutes.
Above I have provided a comparitive volatilite study for AUD crosses to help manage your expectations for potential profit or loss over a given timeframe.
RBA minutes and employment in focus
Trades eagerly await RBA’s minutes tomorrow, in hope of gleaning any extra info for future monetary policy.