The conflicting forces await AUD tomorrow which could instil volatility back into the battler.
Conflicting forces await AUD tomorrow which could instil volatility back into AUD crosses. On one hand, any sign of a pick-up of inflation could get hawks and bulls into a frenzy as AUD traders gun for 80c once more. On the other hand, the RBA aren’t going to like it. As the RBA Governor Philip Lowe speaks just 90 minutes after the CPI set, we think the risk of another verbal intervention is high.
The recent pickup with CPI is a good sign for the economy, although RBA doubt its ability to sustain the current trajectory and for it to be variable over the coming quarters. It is for this reason that inflation does surprise to the upside, it may be more of a surprise. So, RBA have the to figure out the delicate balance of hoping for better economic data whilst simultaneously hoping for a weaker Australian Dollar. We argue that higher CPI is not even required to warrant another jawbone, yet stronger CPI only further reinforces the probability of it.
AUD currently sits in a holding pattern ahead of tomorrow’s CPI data, with the Fed meeting also suppressing volatility for now. As this holding pattern is above the 2016 high (a level which was smashed after RBA’s last meeting) it could be argued Debelle’s jawboning needs reinforcement. And there’s no better person to do it than Lowe.
Technically it could be forming a bullish triangle which would assume a direct break of 80c once the APEX has been completed. Whilst we remain above the weekly pivot (purple line) then we expect buyer to step in and support it, although a break beneath it suggests a return to the 2016 high.
However, what is really causing RBA a headache is the weak US Dollar which continues to plummet thanks to unfavourable Whitehouse circumstances and weak data. If this trend continues, then it is hard to see how the RBA can single handily control AUD lower.
This also makes it likely any downside move may be limited as AUD is by far the stronger currency than USD on several timeframes. Moreover, as technicals, sentiment and fundamentals point lower for USD, the expectation of a dull Fed meeting only add to the reasons to not ‘bottom pick’ the Dollar (At least not for too long) which means AUD may end up breaking 80c regardless of what happens domestically.
