Intraday Market Thoughts

Archived IMT (2010.10.04)

by Ashraf Laidi
Oct 4, 2010 18:13

AHEAD OF RBA DECISION. Aussie coming off across the board as US equities retreat ahead of the start of earnings season and Fridays NFP. But what about tonights RBA decision (3:30 am GMT). 73% the market expects the RBA to go for its 7th rate hike, raising the overnight rate to 4.75%. Australias employment figures have added a net 226K jobs this year, with only one negative monthly reading in February. Inflation now stands at 3.1% y/y, above the higher end of its maximum target. Although the Aussie now stands 1 cent away from its record high of July 2008, a time when the RBA intervened to lower the currency, today is different. None of the RBAs recent policy decisions included preoccupations with the currency, which may give traders the green light to take out the 0.9850 resistance in the event of a rate hike. But watch for caveats. The RBA could well wait for the next quarterly CPI release, due later this month before deciding on its 7th rate hike in 12 months. If the RBA does hike, the Aussies resulting rally will depend on the language. The omission of the phrase for the time being at the end of the statement could imply a return go to wait-and-see mode. An omission of the phrase along with a rate hike could generate a sharp pop higher to wards 0.9890s before profit-taking ensues on the foundation of a wait-and-see interpretation. BEST CASE SCENARIO for AUD would be a hawkish rate hikemaintaining the statement phrase for the time being. I see a 40% chance for rates remaining on hold. But even in the event of a rate hike, watch out for the language change. For this reason, selling the bounce will be the more likely outcome, limiting gains at 0.9860s while targeting initial support at 0.9520 and 0.9460. ONLY A RATE HIKE and a HAWKISH language (explicitly allowing door open for more hikes) will extend gains towards past 0.9850 and onto 0.9900s.


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