Intraday Market Thoughts

AUD Lost in the Shuffle

by Adam Button
Jun 5, 2017 23:21

All the focus is on the UK election and Comey's testimony this week, but news out of Australia has the potential to steal the show. AUD was the top performer Monday benefiting from Qatari gas isolation following its neighbours' blockade. The RBA decision is up next. The Premium video below is contains the current and future positioning for major instruments ahead of the week's key events. 

2017 hasn't gone according to plan for many central banks but the RBA might be the most astray. They forecast 2.5% growth this year and 3.3% in 2018. It's part of the longest unbroken streak of developed single-country growth in the modern era.

At the start of the year there were few skeptics, but suddenly there are worries. Some economists a small contraction in Q1 and the consensus is for just +0.3% growth. If the number is positive, it will largely be due to climbing inventories.

The sudden slowdown is likely to be temporary but it won't be brushed aside by the RBA. Policymakers meet today and are fully expected to leave rates unchanged at 1.50%. But the market is increasingly expecting a rate cut by year end. The implied probability has risen to 20%, doubling from a month ago.

That rise was in large part responsible for the Australian dollar's recent struggles. Now, the RBA has an opportunity to validate it. The decision is at 0430 GMT. The May 2 statement was entirely neutral and Lowe said then that forecasts for the Australian dollar were little changed. Complicating his message is that Q1 GDP is due a day later. The RBA is likely to get some insight on what's coming but won't want to be seen as hinting at the results. For traders, a dovish statement and a weak print could set up a quick fall in the Aussie. There is one AUD trade in progress in the Premium Insights.


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