The RBA Cut Rates, but The AUD is The Star performer



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And that, despite US Treasury yields moving up a meagre 2bp. The move has resonated, and EURUSD looks like it could easily go lower here, and after three inside periods (on the daily chart), we’ve seen this rectify, and the EUR bears fully exert their dominance.

Event risk to watch out for

The highlight and significant event risk in the coming 12 hours or so falls on a speech from NY Fed president (at 20:35aest), John Williams, who could offer some key insights into the debate as to whether we see a 25- or 50-bp cut at the July FOMC meeting. That argument is swaying closer to the 25bp side of the ledger at this stage, and we may feasible need a punchier response (than currently priced) to push the S&P 500 and Dow higher from here and to maintain these record highs, although Q2 earnings are just around the corner.

Consider we see the USD index (USDX) testing the 200-day MA, as well as the former September 2018 uptrend and how price acts around here, will be very telling. Only a few days ago the market was warming to a more protracted and meaningful move lower in the greenback and the start of a more bearish trend – however, we’ve had to do a reassessment here.

Aside from the upcoming John Williams speech, on the data docket, we get US factory orders, durable goods and ISM service data in early US trade. And, while the market craves answers on future Fed policy, as it does with many other central banks, and while this data is important, it feels as though Friday’s US non-farm payrolls is still the real prize.

Around the Asian markets today

It’s been a fairly sanguine session here in Asia, where we’ve seen some buying in the Hang Seng, although the Hong Kong index was closed yesterday and has played catch-up. China and Japan are flat on the day, as is the case in G10 FX markets, with small selling seen in crude markets. The key focus on the floor today though, has been pre-positioning and the subsequent reaction to the RBA meeting, where we saw the RBA cut the cash rate to 1%, a fate that was 84% priced into rates markets.

AUDUSD fell into 0.6959, before quickly reversing and we see price now trading marginally higher than where we were pre-cut. Reading the statement, we see the bank have opened the door to further cuts, but an August cut was already priced and one suspects that should we get a better feel to the next Aussie employment print (18 July), and/or stability in the Q2 CPI print (31 July), then there will be a few questioning the merits of third consecutive cut.

It’s for this reason, why trading around these events can be incredibly difficult at times and some will be scratching their heads that despite the RBA cutting, the AUD is the best performing currency on the day.

It’s for this reason, why trading around these events can be incredibly difficult at times and some will be scratching their heads that despite the RBA cutting, the AUD is the best performing currency on the day. Consider RBA governor Lowe speaks at 19:30 aest tonight and he provide additional colour – for those holding AUD exposures, this speech is another risk to watch.

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Chris Weston, Head of Research at Pepperstone (Read Our Review )

This article was originally posted on FX Empire

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