The fate of A$ lies with China PMI and RBA tomorrow

Currently back above 94c I expect trading to remain quiet until tomorrow's Rate Decision. The question is whether there is really anything for the RBA to decide?

SUMMARY:

- Near-term suggests weakness around the 0.943 highs and for a retracement towards 0.93

- I expect support around 0.9350 to hold and for price to grind higher, towards 0.945 and 0.950

- Good data from China tomorrow is likely to provide support for A$ than RBA statement

- Large traders are increasingly NET long, however rising process on lower Open Interest raises concerns over the coming months

The markets are pricing in a 2% change of a rate decrease tomorrow, and I think you'd be hard to find anyone calling for a rate rise.

Whilst it is pretty much a given for rates to remain on hold, traders will be listening out for any jawboning from Glenn Stevens or clues in relation to the ‘historically high’ Aussie Dollar. However I do not see any attempts to talk the Aussie lower tomorrow since the RBA have shifted to a neutral bias.

The Aussie has continued to whipsaw around the 0.940 level after several failed attempts to hit out 0.945 targets, or remain below 0.940 for more than 1 session. Also rallies towards 0.945 have failed to close at the highs to suggest a weakness to continue upwards and for a pending retracement.

So whilst I expect the obligatory price reaction during the statement, I also suspect the fate of the Aussie tomorrow lie in the hands of the Chinese PMI data which comes out prior to the RBA statement. Manufacturing PMI is expected to be at a 6-month high which will continue to support the Aussie if it comes in or above 51.0. If we get a poor number and it gets revised down then we can expect A$ to break below 0.940 support. Technically it remains bullish; As long as we remain above 0.935 then near-term targets are 0.945 and 0.950, which is currently supported by a weaker Greenback.

Looking at the weeks ahead the Australian Dollar should continue to be supported from several factors such as:

- A weak Greenback following sluggish Growth data from the US

- A continued interest in Australian Government Bonds from foreign investors

- Commodity prices such as Gold, Copper and Iron Ore are also improving.

However also take note that price continues to climb on lower volume - a warning that the gains from the Jan '14 low are corrective. Whilst my near and medium-term outlooks remain bullish for A$ I expect this to return to a bearish as we approach the end of the year.