AUDUSD TURNS TO AUGUST RBA MEETING

The recent stretch of Australian Dollar weakness looks set to extend its record of consecutive daily declines. Spot AUDUSD has drifted lower over the last 14 trading sessions and Monday’s close will likely add another tally to the streak. Looking ahead, AUD currency crosses will likely take cue from Tuesday’s interest rate decision from the Reserve Bank of Australia (RBA) expected at 4:30 GMT.

Australian Dollar downside over the last two weeks has not been isolated to spot AUDUSD, but instead witnessed across all major Australian Dollar pairs to varying degrees. AUD selling pressure has accelerated recently as the US-China trade war rages on. Seeing that that China is Australia’s largest trading partner, it is anticipated that the topic will be highlighted once again by the RBA Governing Council as a key risk to the economy in the central bank’s monetary policy update.

RBA INTEREST RATE PROBABILITIES

While the central bank is widely expected to leave its benchmark overnight cash rate (OCR) unchanged at 1.00% tomorrow according to overnight swaps, forward guidance hinted at by RBA Governor Lowe will likely dictate the progression of RBA interest rate expectations and where the Australian Dollar heads next.

Looking further out to the December RBA meeting, rate traders are pricing in a 34.4% probability that Australia’s policy interest rate will be halved before year-end. In comparison, the market’s expectation for the RBA to leave rates unchanged for the rest of 2019 currently sits at a mere 12.6% probability.

SPOT AUDUSD PRICE CHART: DAILY TIME FRAME (DECEMBER 23, 2018 TO AUGUST 05, 2019)

Judging by AUDUSD 1-week implied volatility of 8.82%, its highest reading since May 09, spot prices are expected to trade between 0.6694-0.6860 with a 68% statistical probability. If the RBA indicates further willingness to ease monetary policy, spot AUDUSD bears will likely target the January flash-crash intraday low of 0.6739. Conversely, spot AUDUSD bulls might eye the June swing low of 0.6832 if the RBA reiterates its firm stance after already cutting rates twice this year.

SPOT AUDJPY PRICE CHART: DAILY TIME FRAME (DECEMBER 23, 2018 TO AUGUST 05, 2019)

Sentiment-driven AUDJPY is another Australian Dollar currency pair worth keeping tabs on. AUDJPY 1-week implied volatility of 11.75%, which is also at the highest level since May 09, indicates that spot AUDJPY will trade between 70.743-73.082 with a 68% statistical probability.

AUDUSD – IG CLIENT SENTIMENT INDEX PRICE CHART: DAILY TIME FRAME (FEBRUARY 06, 2019 TO AUGUST 05, 2019)

According to IG Client Sentiment data, 77.6% of spot AUDUSD retail traders are net-long resulting in a long-to-short ratio of 3.47 to 1. Also, the number of traders net-long is 12.6% higher from last week whereas the number of traders net short is 26.1% lower than last week. Yet, we typically take a contrarian view to crowd sentiment and the fact traders remain net-long suggests spot AUDUSD prices may continue to fall.

-- Written by Rich Dvorak, Junior Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight