Halister News

(Bloomberg) -- AUD/USD may edge higher short-term if election results avert a hung parliament and RBA leaves rates unchanged this week, Bloomberg strategist David Finnerty writes.

• Pair may face some initial pressure early this week given uncertainty over national election result; see election wrap
  • However, investors are becoming accustom to idea of Brexit and are resuming a more risk-on approach in Asia- Pacific currencies
• AUD/USD’s bearish sentiment was greatly reduced last week as markets further digested U.K.’s decision to leave the EU
  • AUD/USD 1-mo. risk-reversals have dropped to 1.43 vol, puts over calls, from 2.32 vol reached on June 24 when Brexit vote was announced
• MACD remains bullishly above zero and signal line as FX pair bullishly breaches 100-DMA resistance
• Investors are pricing a higher probability of a rate cut at August’s meeting, after the next CPI data is released on July 27
  • Pricing for a July rate cut has dropped to 13% from 20% on the day of Brexit referendum on June 23 while probability of an August rate cut has risen to 57% from 37% on June 23
• RBA is expected to leave its cash rate unchanged at 1.75% on July 5, according to all 27 economists in a Bloomberg survey
• RBA said at its June meeting that although inflation is below target, holding policy stance unchanged at that meeting would be consistent with sustainable growth in the economy and inflation returning to target over time
  • RBA decision due July 5 at 2:30pm local time
• AUD/USD currently -0.3% at 0.7465; pair rose 0.4% last wk
• NOTE: David Finnerty is an FX strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.