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Forex Flash: RBA will probably wait till capex before any rate cut - Westpac

FXstreet.com (Barcelona) - A 50/50 pricing in financial markets ahead of the risk event RBA decision today "should ensure lively trade in AUD", says Sean Callow, FX strategist at Westpac.

"Only a handful of economists expect a 25bp cash rate cut today to 2.75% (with none of the big 4 local banks for a cut) but many now see the easing no later than June" Mr. Callow notes.

Sean continues: "The case for cutting today is essentially that Q1 CPI affirmed the existing “scope” to ease policy, growth remains clearly sub-trend with housing construction patchy and business confidence seems to have weakened further."

However, Westpac believe "the RBA will be very keen to see the capex intentions survey on 30 May to judge whether there really is cause to be hopeful over investment once the mining cycle has peaked later this year."

Giving his take on the potential AUD/USD reaction, Sean said: "It will probably react simply to the 2.75% vs 3% outcome rather than the accompanying commentary; the steady hand we expect should be worth about 40-50 pips on AUD/USD but a rate cut would probably produce a larger move given it would trigger stops under the 2 month lows."

Forex: AUD/USD awaits RBA below 1.0250

Big day ahead for the Aussie with plenty of data, including the RBA rate statement at 04:30 GMT. AUD/USD is last trading at 1.0249, off fresh session lows printed in early NY trade at key support level 1.0222. The pair is down -0.68% for the week so far, with "Big hedge funds were sellers again in overnight trade,” reported FXWW founder Sean Lee. “Some of the big macro funds have been consistently selling AUD/USD over the last few months,” he adds. “Looks like they are getting more confident that a rate cut is coming!," says Sean.
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