Intraday Market Thoughts

Aussie Traders Lean toward Cut in Close Call

by Adam Button
Mar 3, 2015 0:20

The Australian dollar slumped in the hours ahead of the RBA decision in a sign that the market is leaning towards a cut. AUD was the weakest performer along with NZD on Monday while the US dollar led the way after ISM manufacturing data. AUDNZD Premium is the sole Aussie trade currently in progress ahead of the RBA decision. 1 of the 3 GBPUSD longs was stopped out, whhile the remaining GBPNZD hit its final target.

The CFTC data we wrote about to start the week showed a shift into Australian dollar shorts and that continued to be the theme on Monday. AUD/USD slumped by as much as a half-cent on the day and finished near the lows.

The RBA decision is as close as it gets with the rate futures market pricing the chance of a cut at 49.2% and no cut at 50.8%. But the momentum appears to be swinging toward a cut after soft jobs and capex data. JPMorgan economists switched to a cut on Monday in another sign of the momentum.

One of the factors market watchers have cited is the Australian dollar. The Aussie is at virtually the same level as before the most-recent cut that will prove frustrating to Stevens & Co. What may keep them on the sidelines is that China appears to be taking strong steps toward boosting the economy and the commodity rout has ended (at least for now).

In the event of a cut, look for a fall to the Feb lows of 0.7625-50 range. If not, a return to last week's high of 0.7900 would be in order unless Stevens strongly hints a cuts to come.

The other factor is the US dollar. It made a strong move to the upside to start the week. The main data point was the ISM manufacturing report. It only registered at 52.9 compared to the 53.0 consensus but after a soft Chicago PMI and other regional indexes, the market was looking for something lower than the consensus.

As a result, USD/JPY jumped to a two week high and the euro gave up all its earlier gains. Cable is continuing to retrace after failing at the 2015 high last week.

The RBA decision is at 0330 GMT.


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