AUD in focus ahead of the RBA

AUD/USD tracked commodities yesterday and, after dipping to as low as $0.8420, has now recovered to reclaim the $0.8500 handle.

Source: Bloomberg

However, the pair continues to look fragile, just like most commodities. It’s also a big day ahead for the local currency, with building approvals and current account data at 11.30am AEDT, then the Reserve Bank of Australia (RBA) at 2.30pm. Building approvals are expected up 5.2% and a current account deficit of $13.5 billion is envisaged. The current account data will help shape expectations for GDP, which is due out on Wednesday.

I feel the pair will be relatively sidelined around $0.8500 heading into the RBA meeting. Not much change is expected but if the RBA acknowledges tough conditions locally and internationally, then this could put pressure on the AUD. Don’t forget house price growth has been moderating and this has prompted some analysts to call for at least one rate cut next year. Deutsche Bank has been the most aggressive and is now calling for 50 basis points’ worth of cuts next year.

Analysts are increasingly calling for cuts and should this come to fruition then the AUD is likely to be trading much lower in the medium term. As I said yesterday, there isn’t much support in sight and, while we might see some support at $0.8300, it seems we are gearing up for a move down to $0.8000.

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