Upcoming RBA Decisions and Economic Insights
- The Reserve Bank of Australia is anticipated to maintain interest rates at 4.35% during its upcoming meeting on Tuesday.
- Despite expectations for three rate cuts by December, recent GDP data for Q3 has influenced market predictions.
- Last week, the Australian dollar faced significant declines, ranking as the weakest major currency against its counterparts.
- AUD/USD closed last week at its lowest point in 13 months, marking its most challenging period in nearly 20 weeks.
Recent GDP statistics have revived the prospect of potential interest rate cuts by the RBA. Currently, market predictions fully incorporate three cuts into the cash rate futures curve by the close of December. The first of these cuts is projected for April, followed by subsequent reductions later in the year. The chances of a cut being announced during Tuesday's meeting are estimated at only 9%.
In the latest release, the annual GDP growth rate fell to a concerning 0.8%, the lowest in four years, with the quarterly figure of 0.3% coming in below expectations of 0.5%. It remains to be seen whether the RBA will address these disappointing GDP figures in their Tuesday remarks, despite the prevailing expectation to keep rates stable at 4.35%.
However, given the RBA's typically cautious stance, it is likely they will maintain a slight hawkish bias. Decision-makers will likely want to analyze the upcoming employment data and the quarterly inflation reports, scheduled for January, before seriously contemplating an interest rate cut.
On a positive note, employment indicators remain healthy, and business confidence as reported by NAB reached a two-year high last month. It is essential to note that the market's expectation of three cuts next year is far from guaranteed, particularly if US inflation creeps higher and prior policy decisions by the Trump administration prove to be inflationary next year.
AUD/USD Futures: Market Positioning Insights
- Asset managers have ramped up net-short positions in AUD/USD futures by 8,400 contracts.
- Meanwhile, large speculators have cut their net-long positions by 10,400 contracts.
- This results in an overall bearish shift of approximately 19,000 contracts.
- Both groups have increased gross short positions while trimming long positions.
AUD/USD Technical Analysis
The Australian dollar reached its lowest weekly closing price in over a year during last week’s trading, which was its most bearish week in 19. Support has been observed along the October 2022 trendline; however, with the current daily bearish trend diverging from the 20-day EMA, a break below this support level appears probable. This outlook is further supported by USD/CNH indicating a potential breakout above 7.3.
AUD/USD is likely to attract bearish traders looking to fade any rallies, anticipating a potential break of the 2022 trendline and the August low as it moves towards 0.63, which aligns conveniently with the lower band of 1-week implied volatility.
