Intraday Market Thoughts

Aussie Biggest Loser Ahead of Possibe RBA Dovish Shift

by Adam Button
Oct 4, 2011 2:00

Even the euro is rallying against the Aussie as markets expect the RBA to make a dovish shift in today's meeting. (see more below). Worries about the crisis in Europe and a slowdown in the BRIC countries intensified Monday, breaking ranges in multiple risk trades. JPY was the best performer while EUR and GBP lagged. The RBA decision is the highlight of the Asia-Pacific session. 7 of Ashraf's Premium trades hit all their targets, gold & silver remain in progress, Wednesday's gold trade was stopped out. Aussie is the biggest loser ahead of RBA.

The only major data point of the US session was the September ISM and it surprised to the upside at 51.6 compared to the 50.6 expected but it didnt matter for the market. A major focus was Franco-Belgian bank Dexia, which has already been bailed out once and may require government intervention again. The board called an emergency meeting Monday amidst intense funding pressure.

Continued delays in releasing the upcoming tranche of aid to Greece are forcing banks and funds to hedge for the worst. Juncker said todays Eurogroup meeting would not yield an answer about funds. We strongly believe the bailout will continue but delays have undermined confidence. We expect a risk rally when the announcement finally comes but, ultimately, this will be a selling opportunity.

Worries about the Chinese property market hit Hong Kong markets hard to open the week and talk about a slowdown spread to the other BRIC nations as well. Ashraf has continually this theme as the chief threat to commodity currencies and risk appetite. Adding further fuel to the worries was a 79-19 vote in the US Senate late Monday to proceed with the bill aimed to punish China for FX interference.

All six of Ashrafs trades issued today hit all targets (two remain in progress). In addition, all five of Ashrafs trades on Friday were successful. Direct Access to today's trades here: Get a Free 1-week Trial here:

The S&P 500 closed at the lowest levels of the year, falling 2.9% to 1099. An open or close tomorrow would be further confirmation of a breakout from the recent range and would target a fall to at least 1010. EUR, AUD, CAD and NZD all closed at fresh cycle lows as well.

RBA Preview

The RBA is highly unlikely to lower the 4.75% bank rate at 0330 GMT but will ratchet down growth and inflation expectations, giving it room to lower rates at upcoming meetings. Since the Sept. 6 meeting, Q2 inflation was revised sharply downward (to 0.5% from 0.9%) as the ABS changed how it calculates CPI. This, undeniable signs of external turmoil and declines in commodity prices will force a dovish stance. In the 2008 prior to the first of a cycle of rate cuts, the RBA used plain language to signal the change, saying with demand slowing, the Boards view is that scope to move towards a less restrictive stance of monetary policy in the period ahead is increasing. AUD/USD fell 300 pips over the remainder of that week.

Aussie is ignoring this morning's better data. Australia Aug trade balance rose to AUD 3.1bln from AUD 1.83bln, Australia Aug building permits rose 11.4% from 1.8%


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