Pressure on Aussie Remains Fundamental Ahead of RBA: Analysis
(Bloomberg) -- Downside risks to the Australian dollar remain outside the lucky country given that both traders and economists see eye to eye and expect little new from the RBA statement this Tuesday, writes Bloomberg strategist Michael G Wilson
- Aussie should be trading much lower given the fundamentals of fragile commodity prices and interest rate differential with the U.S.; however, it has outperformed on the crosses due to haven buying into the French elections and ahead of Australian PM Malcolm Turnbull’s visit to America this week
- After topping out at $92.61/MT in March, iron ore has managed to consolidate at an average of $70.88/MT for April
- AU-U.S. 10-year sovereign spread has averaged 26bps in April against a rolling 12-month average of 39bps
- OIS pricing for a change in RBA interest rates in 2017 is negligible
- Should Turnbull’s visit pass without incident and French election risk pass, an as-expected RBA statement is unlikely to be enough to support the Aussie at current levels
- Leveraged accounts reduced their net long positions in AUD to the lowest since January, according to the latest CFTC data
- Technical indicators including slow stochastic momentum and relative strength index are beginning to show a bearish bias
- AUD/USD slow stochastic momentum indicators %K currently lag %D, displaying bearish outlook; relative strength index at 40, also alllows for further losses
- RBA expected to keep cash rate unchanged at 1.50%, according to all 27 economists in Bloomberg survey; decision due May 2 at 2:30pm Sydney
- NOTE: Michael G. Wilson is an FX strategist who writes for Bloomberg News. The observations he makes are his own.
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