No cut from the RBA this week. AUD should be due a rebound.
The RBA is expected to remain on hold Tuesday after unexpectedly cutting rates last month. Employment and building permits data have been strong in Australia following the RBA’s May meeting, and forward-looking capex plans have also improved. The surprisingly stronger official China May PMI (released over the weekend) reading of 50.8 versus Friday’s rumours of a sub 50 number has been supportive for the AUD and may matter more than Tuesday’s RBA. Australian retail sales numbers rebounded in April by +0.2% mm.. The more positive tone on AUD comes as positioning is becoming extreme both regards the IMM and our own BNP Paribas Positioning Analysis (see chart). AUD also faces some short-covering risk, against the USD, should US data come in on the soft side this week as is expected. Australian Q1 GDP inputs and the eventual print (Wednesday) will be watched. On balance, we think risk-reward favours building AUD longs, and think AUD is set for a squeeze beyond 0.9700, with a monster payrolls number the major risk.
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BNP Paribas