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AUD/USD: Plenty for traders to deal with this week ahead of the RBA (Will the RBA cut?)

  • AUD/USD is 2 pips off the highs for the day so far and is currently trading at 0.7058, up from a low of 0.7036.
  • While markets are focussed on global growth dynamics, it will be an interesting couple of weeks for the antipodes given next week’s monpol meetings. 

First of all, we have Chinese April PMI data today, and then, U.S. ISM manufacturing, EU GDP, the FOMC and US jobs data at the end of the week, all of which are to solidify a tone for markets leading into the Central Bank’s next week. 

Eyes on EZ first

While the U.S. data and FOMC are of course critical, there should be as much attention given to the EZ where economic performance has been inconsistent. While EZ confidence missed for the second month in a row, a bigger focus lies on tomorrow’s GDP data and from which markets are likely to start to use more so as a barometer for the wider global economic picture where investor sentiment will be determined and subsequent FX flows originated. For instance, should the EZ be seen as deteriorating, that will not be helpful for the global growth buzz which had been somewhat supportive of such FX proxies as the Australian dollar.  

“Tuesday sees 10 important indicators for the euro area released. We focus on euro area GDP, where growth is likely to pick up from H2 lows but a downside miss could yield asymmetric market reaction, and German flash inflation, where Easter timing effects could distort the figures. Also out are inflation, GDP, and unemployment releases for most major countries,”

analysts at TD Securities explained.

A potentially wild ride this week in Asia

Meanwhile, we are in for a potentially wild ride this week in Asia considering the lack of liquidity with Japan being out and China taking a break as well later in the week. There is a lot at stake this week and there is no telling how price conditions will be once North America packs up for the day and Asia seeks to digest the market noise from various key events slated. First up, we have Chinese official and Caixin PMIs where markets are looking for further stability following last month’s improvements as the U.S. and China continue to edge towards a trade deal – Such an outcome tonight should be positive for the Aussie as bulls seek to protect 0.70 the figure. 

RBA expectations

Analysts at ANZ Bank noted that in the April Minutes the RBA board discussed a scenario in which a rate cut would be appropriate if “inflation did not move any higher and unemployment trended  -  Following the Q1 CPI we now have a combination of stable unemployment and falling inflation:

  •  In recent months both inflation and GDP growth have surprised materially to the downside. We think this will see the RBA ease in May given the impact these developments will have on its outlook. The timing of the election is a complication, but we don’t think it will stop the RBA from acting if its forecasts lead to the conclusion further monetary stimulus is required. 
  • Will 25bp rate cuts in May and August be enough given the prospect, among other things, that it may not generate much in the way of AUD weakness? Perhaps not, but we think it will satisfy the RBA for now.       
  • We can’t rule out the RBA not cutting and instead moving to an explicit easing bias ahead of more confirmation that inflation pressures have eased. Q1 wage data is published soon after the May meeting, for instance. But we think this will require theRBA to publish a set of forecasts at odds with recent data.

AUD/USD levels

It was just last week that bears were taking the price for a trip below 0.70 the figure, piercing the 0.7004 March low. This was a short-lived trip mind you and bulls have stepped up tot he plate at 0.698 leaving a bullish doji printed as stochastics move out from oversold territory. The price, is, however, capped at prior support at this juncture and bulls need a push beyond 0.71 the figure for a look in at the 20-D EMA. However,  failure there could open the next wave of supply and bears would seek to break below 0.6950 as the 61.8% towards 0.6857 as the 78.6% retracement. 

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