The RBA meeting is up tonight and this is a huge week for US economic data, so look for AUDUSD to make a statement one way or another this week as it trades in a key pivot area ahead of all the event risks.
I’ve talked about the 1.0340 area in AUDUSD for a few days now because it’s such a pivotal zone of support, with the 200-day moving average in play, and more important, because it recently found support there and it’s also the location of the 0.618 Fibo of the recent rally to 1.0600+ in play as well. (More importantly because the 200-day moving average has been crossed multiple times this year without serving as much of a catalyst).
Tonight (the Australian Tuesday), the RBA will offer its latest rate decision and forward guidance. Long ago, the interest rate fundamentals have argued for a much weaker Aussie, but the market has resisted the signal due to the recent positive effect of multiple fresh QE injections (the ECB’s conditional intervention promise, the Fed’s QE3 and the recent BoJ efforts) on commodities and risk appetite. Now, risk has come off a bit, and this week will tell us whether that “bit” turns into a deeper sell-off and whether the RBA will send guidance even lower.
Chart: AUDUSD
Friday saw an ugly dark cloud formation in AUDUSD. The worst combination for the Aussie from here would be a more dovish than expected RBA tonight combined with a further sell-off in risk. This could send the AUDUSD packing to a test of the 1.0167 support much lower. To look back higher, we’ll need to see risk appetite surviving the latest sell-off and for the pair to rally back above 1.0450. Don’t forget the onslaught of US data this week, starting with today’s manufacturing ISM.
John J Hardy,
SAXO BANK