AUD in focus ahead of the RBA

Global FX markets remain pinned on the Ukraine-Russia situation, with latest reports suggesting Russia continues to deploy troops to the Crimean region.

The situation seems to be heightening with reports that Russia has now said to have given Ukraine an ultimatum to surrender Crimea. Despite these reports, risk sentiment has remained fairly stable in Asia, with traders taking a wait and see approach. At this stage I feel reacting to fresh developments is possibly a better strategy than pre-empting a situation.

Investors even ignored a string of better-than-expected economic data out of the US including personal spending, personal income and manufacturing PMI. This was not enough to stop gold’s rally as it extended its gains to a four-month high. The greenback continued to march north against emerging market currencies, particularly against Russia’s ruble, the Turkish lira and South African rand. Not even central bank intervention nor an interest rate hike could save the ruble from sliding.

Key near-term support could be tested

AUD/USD held onto the 0.89 level yesterday, the low from the recent range and has since managed to actually recover from there. The gap created yesterday at the open has now been filled which could see the selling resume. Yesterday was a confusing day for the AUD as it reacted to the Ukraine drama, local and China data. Today we have building approvals expected up 0.7%, along with a current account deficit of -$10.1 billion. This will help shape expectations for GDP tomorrow. Any disappointment from this data is likely to see the AUD fall heading into the RBA. I will be watching the 0.89 level very closely today.

No rates changes expected

At 14.30 AEDT we have the RBA’s rate decision with no change expected. The statement will still be interesting though given the impact of the recently disappointing private capex numbers. While no change in tone is expected, any hints towards an unwinding of economic indicators could see the AUD sold. On Friday we have Glenn Stevens’s speech, which might offer more clarity of the implications of the private capex data on RBA forecasts.

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