RBA confirms easing bias

The main theme in the FX space was a slightly weaker greenback after the Empire State manufacturing index and industrial production data disappointed.

Source: Bloomberg

However, I still feel this is a temporary blip and I feel it’ll be bouncing back again come the Fed meeting on Thursday. Risk currencies were on a stronger footing yesterday as investors cheered China’s commitment to support its growth target and this, combined with efforts by other central banks, has kept the markets optimistic that policymakers will do all they can to support growth going forward.

In terms of divergence, though, it only means the gap will widen between the USD and other currencies. The RBA minutes from the March meeting were released today and essentially reiterated the central bank’s easing bias. Current forecasts for growth and inflation certainly suggest further easing will be required but, in terms of timing, May seems like the most likely.

These minutes saw the AUD lose a touch but it continues to hold on to $0.7600. I think many traders will be eyeing a momentum play here, shorting on a break below $0.7600 and targeting recent lows.

Alternatively, traders could wait for some strength before fresh shorts. The fundamentals certainly support a weaker AUD/USD.

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