The AUD/USD managed to shrug off losses in the first 2 days of trading and continues it’s ascend after it upbeat CPI data helped lift sentiments. Following which, the dollar declined further due to dovish comments from the US Fed on Thursday but recovered some grounds on Friday close as the NFP data came in stronger than expected. Latest US-China trade talks optimism over a possible resolution also kept the dollar at bay while boosting the AUD.
For the upcoming week, the RBA’s rate decision on Tuesday will largely set the tone for the rest of the week. The RBA is widely expected to keep interest rate unchanged. While this decision certainly meets market expectation, there is a possibility it may not sit well with the market. This is because, RBA has been emphasizing that the next move will only be up, but delayed making such a decision on the backdrop of a subdued domestic economic environment and slowing growth in China. Therefore, delaying a rate hike again may imply that the Australian economy is still too weak to withstand a rate hike and could spur an AUD sell-off.
Now, even though we explored a possible market reaction to the rate decision, we must not forget there is still optimism surrounding the US-China trade talks, and it continues to underpin the strength of the China-proxy AUD, at least till US President Trump and China’s Xi meets again to make a deal. So, not all is lost.
Hence, the immediate reaction of the market may be a sell-off after the rate decision, but therein also lies an opportunity to buy the AUD at a lower price in anticipation of a US-China trade deal succeeding and an eventual rate hike. The only tough part is identifying when the sell-off will actually stop.
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