By
Kathy Lien |
Forex | Aug 19, 2013 08:44PM GMT |
- FX: If The Bond Bubble Bursts
- AUD: What To Expect From RBA Minutes
- NZD: Service Sector PMI Hits 9-Month Highs
- CAD: Drop In Oil And Gas Prices
- EUR: Consolidation Below 1.34 Continues
- GBP: Shrugs Off Seasonal Decline In House Prices
- JPY: Trade Deficit Balloons To Third Largest On Record
AUD: What To Expect From RBA Minutes
The most significant event risk over the next 24 hours will be the minutes from the last Reserve Bank of Australia meeting. If you recall, the central bank cut interest rates by 25bp earlier this month but instead of weakening, the Australian dollar traded higher. This counterintuitive price action was caused by the neutral tone of the RBA statement. The central bank failed to provide an update on their outlook for China and the mining sector, which traders interpreted to mean that the central bank is not considering additional rate cuts at the time. It will be interesting to see if more details are shared in the minutes. We know that the Reserve Bank is concerned about domestic growth and there have been plenty of weak economic releases to support their grim outlook. Inflation expectations are low despite the 15% decline in the currency this year. The RBA also still felt that the exchange rate is too high which could mean they would be more comfortable with an exchange rate between 0.85 to 0.80 cents against the U.S. dollar. We expect the RBA to maintain a dovish tone and if we are right, the AUD could resume its slide. However if the statement is neutral with no mention of the downside risks or the prospect of another rate cut, we could see a significant short squeeze in the AUD. According to the latest CFTC IMM report released on Friday, speculators reduced their short
AUD/USD positions but overall positioning is still very net short. Both the Australian and New Zealand dollars declined on the back of broad dollar strength despite stronger than expected New Zealand data. Service sector activity grew at its fastest pace in nine months while output prices ticked up in the second quarter. Compared to Australia, the New Zealand economy is faring much better and for this reason we expect further losses in
AUD/NZD.
