RBA expected to remain on hold

FX markets remain quite choppy with mixed economic data across the board. Apart from Australia, activity is pretty limited in Asia, with Japan closed for a bank holiday.

The main focus in today’s Asian trade will be on the AUD heading into the RBA’s interest rate decision. Prior to the RBA decision we have March trade balance figures where a billion dollar surplus is expected. The RBA is expected to keep rates on hold with its neutral stance being maintained. A couple of issues to look out for will be language around the fairly elevated AUD and the recent benign inflation reading.

The global backdrop also remains a concern, particularly with China continuing to churn out some mixed economic readings. Ukraine and Russia concerns just add to the already volatile pot and keep a lid on the AUD’s upside in the near term.

AUD/USD uptrend under threat

Price action wise, AUD/USD has been in a tight range all week with gains capped at 0.93 and a floor in the 0.925 region. There is also an uptrend support line which comes in at around 0.928 on the daily chart and we really need to see the pair close above this level to keep it in its short-term uptrend, failure of which could see the pair head back to test the 0.92 region. Our clients are also indecisive heading into the decision, with 55% of all open positions on AUD/USD being shorts.

It is difficult to see too much upside in the pair on the RBA’s statement given the fundamentals that the domestic economy is facing at the moment. I would be more inclined to short on any strength or take advantage of any downside momentum to short the pair.

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