Investors following tactical strategies should consider selling AUD/USD into the RBA meeting this week, advises Barclays Capital in its weekly FX pick to clients. The trade is macro-technical driven.
On the macro-side, Barclays' rationale is as follows:
"We expect the RBA to cut 25bp this week. The market is divided with six economists including ourselves calling for a cut while 21 others looking for unchanged outcome. And OIS is currently pricing in c.15bp cut at this meeting and 50bp cut by May. A cut by the RBA this week, earlier than the market expects, is likely to weigh further on the AUD. This is consistent with our technical strategy team’s AUD bearish view," Barclays projects.
"As for the RBA Statement on Monetary Policy (Friday), we see downgrades to near-term growth forecasts as the RBA incorporates the weaker outcome for Q3 GDP into its profile. The CPI forecasts should be substantially lowered given the collapse in oil prices. We do not think that the RBA would be swayed by the recently higher core inflation outcome in Q3 and should still factor in low inflation in the short term," Barclays adds.
On the technical-side, Barclays' rationale is as follows:
"A break below support in the 0.7700 area would increase our bearish conviction for AUDUSD. Falling commodity prices, in particular copper, have helped weaken AUD over the past six years and our expectation of further downside for the base metals complex helps add to our bearish AUDUSD view. Australian 10-year yields are already trading at record lows and a rate cut announcement from the RBA on Tuesday would likely catalyse further currency weakness. Our next downside targets are towards 0.7100," Barclays clarifies.
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