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Divergences pose downside risks to AUD - Scotiabank

FXStreet (Guatemala) - Eric Theoret, CFA, CMT FX Strategist at Scotiabank explained that a divergence in market pricing of central bank policy risk for CAD, AUD and NZD has emerged, presenting upside risk for CAD, balanced risk for NZD, and downside risk for AUD heading into next week’s RBA decision.

Key Quotes:

"OIS are currently pricing in an 89% chance of a 25bpt rate cut at the RBA over the next 12 months, with an 81% probability for the RBNZ and 16% probability for the BoC."

"The divergence over the past month has been notable, given the moderation in easing expectations at the BoC, the maintenance of easing expectations at the RBNZ, and— most importantly—the emergence, moderation, and re-emergence of easing expectations for the RBA. AUD risk is elevated heading into the October 5th RBA policy meeting."

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