GO Markets FX Analysis | A$ capped on rates conjecture; RBA rate cut a near certainty

The Aussie dollar slid yesterday after domestic data releases saw investors price in a greater chance of a rate cut, with retail sales and ANZ job ads showing weaker than expected activity. According to interbank cash rate futures, a rate cut at today’s RBA policy meeting is a near certainty, with a 92 percent chance Stevens and Co will slice 25bps off the official cash rate – equaling the all time low of 3-percent set in April of 2009.

Other data yesterday showed company operating profits fell 2.9 percent in the third-quarter, while a 1.1 percent rise in inventories suggests subdued demand. The Australian dollar fell below 104-figure in the ensuing period, but regained composure after China’s official services index and the HSBC manufacturing PMI allayed China slowdown fears.

While a rate cut today will encourage further weakness from the Aussie dollar, we anticipate selling to be limited in duration and scope given markets have suitably priced in a full 25bps cut at today’s meeting. The following statement will however be the defining factor as markets look for the reasoning behind the decision and implications for future policy. An initial move below 104 US cents may see a descent slowed at 103.75, while further pockets of support suggest further downside to be contained above 103.5 US cents.

In the unlikely event the RBA stands pat, we’re likely to see the statement maintain a dovish bias, therefore limited the upside scope for the local unit. For this we anticipate selling pressure ahead of 105-figure to contain the upside.

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