What to Expect From The RBA

The US dollar continued to creep higher on Monday as the market braces for a big week of economic news. The Canadian dollar was the top performer on Monday while the euro lagged. The RBA decision will be the focus in the hours ahead. Ashraf's Premium Insights will release an AUD-related Premium trade shorrly before the RBA decision, which is due at 00:30 ET, 4:30 GMT, 5:30 BST.

US trading was slightly lackluster to start the week, in part because the UK was on holiday. In the factory orders report, core durable goods orders were revised to +0.1% from -0.5% in a slightly better signal for business investment.

Most traders are looking ahead to more significant economic news later this week. That begins with the RBA decision at 0430 GMT. Among 29 economists surveyed by Bloomberg, just four anticipate no change.

The futures market has pared expectations of a rate cut compared to yesterday. The latest pricing suggests a 69% chance of a cut compared to 31% of no change.

The Australian dollar tracked slightly higher to 0.7850 ahead of the release as two tests of 0.7800 held. The range over the past three weeks is 0.7533 to 0.8076 and whatever the RBA decides could send AUD/USD to the extremes of that range before the end of the week.

Given economist and market expectations, electing not to cut would be the bigger surprise and almost-certainly test 0.8050. If it breaks could depend on the associated language but it would take some extremely dovish comments for that line to hold if there is not a cut. The market is looking at a 50/50 probability of a second cut in August.

That pricing is also important to keep in mind if Stevens cuts. A cut and then a clear shift to neutral would spark a kneejerk lower but also a tremendous opportunity to buy.

There will almost-certainly be anti-AUD jawboning but the effects will be fleeting.

For more on why a cut is likely, see yesterday's IMT.