The main focus yesterday was on Australian inflation data, which was released above expectations, at least on balance.
Accordingly the latest data increases uncertainty when it comes to further policy easing from the RBA. As central bank members’ latest dovish rhetoric increased selling demand, additional position squaring-related upside cannot be excluded should incoming data make a case of it. From that angle the focus shifts to this week’s China business activity data, for which our economists expect a modest rebound. As a result to the above outlined conditions we advise against selling the AUD in the very shortterm.
From a broader angle, however, we remain in favour of selling rallies, in particular against the NZD. In that respect it must be noted too that the focus will shift to next week’s RBNZ meeting, in which the central bank is likely to reinforce a more hawkish policy stance. Hence we remain short AUD/NZD.
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