CREDIT AGRICOLE: Ahead This Wk's RBA Minutes, FOMC: A Buy Or A Sell?

This week’s RBA minutes should maintain AUD pressure in the wake of Governor Stevens’ comments this week. Suggesting that a fairer value for AUD/USD was closer to 0.85, the governor’s comments have prompted not only significant currency selling but also an adjustment lower in policy rate expectations.

Reinforcing RBA board member concerns surrounding an inflated AUD TWI, this week’s minutes should therefore provide further fuel for bearish AUD speculators.

Indeed just as AUD’s perceived FX liquidity status relative to its GDP size provided abnormal levels of foreign investor demand during the Fed-QE liquidity boom, it now appears AUD will be singled out for abnormal levels of investor supply for similar reasons as markets move towards the post Fed-QE era.

We therefore look for AUD/USD to push lower this week towards the pair’s 5 August low of 0.8848 but warn of a possible temporary bounce on any Fed QE-taper disappointment.

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Credit Agricole: AUD/USD: A Buy On Dips This Week?

We expect the AUD to remain a buy on dips against the USD.

First of all we see little room for the RBA to turn more dovish any time soon. This is especially true as the central bank has sounded more relaxed of late when it comes to the currency’s appreciation in the last few weeks.

Stable RBA monetary policy expectations combined with additional USD downside risk on the back of political uncertainty should make a case for the pair to trend higher, especially when considering further improving sentiment with respect to China.

In terms of events, this week’s focus will be on labour data. After last month’s disappointment, there appears to be scope for a constructive release. If so, further improving domestic conditions would support the notion outlined above.

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