RBA sets stage for tactical AUD rally
AUD may be due for a short-squeeze higher in the next one to two weeks following today’s RBA statement which came on the less dovish side compared to our expectations. While the central bank cut rates by 25bps as widely anticipated, the policy guidance paragraph was altered to reflect the board moving from an easing to a neutral bias i.e. language about the scope for further policy easing was removed. It appears that the RBA is now data-dependent, with key parameters being (a) labour market, (b) China and (c) AUD. The language in describing the economy was also hardly changed even in light of weaker data points in recent weeks. The central bank is expecting (and relying on the) the depreciation of the exchange rate to continue. The outcome suggests that the additional 25bps priced in by December may be seen as excessive and vulnerable to unwinding on any better data releases. As we have mentioned before, all indicators including China related growth sentiment have been suggesting that AUD is oversold. However, the squeeze higher failed to eventuate over the past month as RBA rate cut pricing increased. With that factor removed for the time being, there remains potential for a 2-3 big figure squeeze higher in AUD.
Read the full report: FX Daily
BNP Paribas