Why the Australian Dollar is Vulnerable Today

The USD/JPY story remains the big story in the FX market as it took out 114 before retracing but it wasn't the only story. The Australian dollar was right at the bottom of the FX pile along with the yen. We explain why today's RBA decision might be completely changed by an extraordinary factor.   As the battle of the remaining economic strengths (US vs Canada) escalate, we issue 2 new trades on USDCAD alongside 2 key charts. These stand alongside the 4 AUDUSD and USDCHF Premium trades.

The US dollar rallied to fresh highs after the ISM manufacturing index hit 59.0 compared to 56.2 expected. It led to a broad rally but it later fizzled with USD/JPY slipping back to 113.92.

The bigger moves in US trading were in the commodity currencies. USD/CAD neared the October high as oil broke down below $80 and Poloz indicated the BOC could leave rates low even after the economy is at full capacity and several other dovish comments. Watch for a break 1.1385, which would mark a fresh high since 2009.

But the spotlight should certainly be on AUD/USD. Technically, a death cross hit yesterday with the 100dma falling below the 200dma. The pair is also nearing the October low of 0.8642.

It's a huge day in Australian markets. Most people are focused on the retail sales and trade balance reports along with the RBA decision. Those are all huge events but they could be overshadowed by a special release at 0030 GMT.

Many traders don't know about this because it was just announced yesterday but the Australian Bureau of Statistics will re-release all the employment reports from Dec to Sept at 0030 GMT with a new seasonal adjustment method. They will also explain what happened with the imbroglio in Aug/Sept and the approach to the October report, which will be released tomorrow (Thus in Australia).

This raises a multitude of questions. The RBA announcement is three hours later at 0330 GMT and there is next-to-know talk about a rate cut but if employment is revised dramatically lower, retail sales are soft and along with yesterday's dismal dwelling starts numbers; there might be a case for a surprise cut.

After the BOJ and the wild volatility elsewhere, we'll leave nothing to chance. Like the BOJ, if there is a dovish surprise, get into AUD shorts ASAP and ride them as long as you can.