Sellers will now eye a test of the key figure level once again
There isn’t much standing in the way of a move towards the 0.7000 handle now with the October low at 0.7021 being the final area where buyers can lean on before sellers make their way towards a test of the figure level.
As it stands, markets are basically all but convinced that a rate cut will come in May now and we’ve even seen Australian 10-year yields take a notable hit, falling by 12 bps today.
All else being equal on the dollar side of the equation, a RBA rate cut for May is basically almost already priced in now so any scope for further aussie is weakness is a bit hard to justify – especially a significant move well below the 0.7000 level.
I reckon we could see a fall below the figure level precipitate further weakness as stops are taken out but it’s hard to really see a move towards 0.6800 unless the RBA communicates that it is prepared for further rate cuts down the road.
The sluggish inflation/wages picture is something we’ve known for years now so in my view, the key to the RBA’s outlook will be in labour market data and Chinese economic data. Unless those two areas start to show signs of significant deterioration, the RBA shouldn’t be in a hurry to cut rates beyond May at this juncture.
And that should still help the aussie a little or at least prevent it from free falling well below 0.7000 against the dollar for now.