We expect the AUD to remain a buy on dips, at least from a short-term perspective. This is mainly due to the view that risk sentiment will improve in the weeks to come and as there is little scope of changing RBA monetary policy expectations.
Data wise investors’ focus will shift to Wednesday’s CPI release. Weak commodity price developments and slowing business activity have been increasing investors’ expectations of a weak outcome.
From the current levels we anticipate only limited downside risk to commodity prices. First of all demand expectations have been adjusting to weaker growth momentum as experienced in Asia and the Eurozone. Secondly, we see scope of the greenback correcting lower due to moderating Fed rate expectations. This is mainly due to Fed members turning more cautious when it comes to a stronger USD’s impact on export competitiveness and price developments.
Unless inflation surprises considerably lower there seems to be little scope of changing RBA rate expectations. This combined with more balanced speculative positioning should keep the risk of additional upside intact.
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