AUD/USD weekly outlook: RBA, AU jobs, US CPI on tap

• The RBA is expected to hold rates at 4.35% on Tuesday
• Although three 25bp cuts have been fully priced in by December, following soft Q3 GDP data
• The Australian dollar was the weakest FX major last week and down against all major currencies
• AUD/USD saw its lowest weekly close in 13 months during its worst week in 19

Last week’s GDP figures have certainly rekindled hopes of an RBA cut. Or to be exact, three cuts. By Friday’s close, three 25bp cuts were fully priced into the RBA’s cash rate futures curve. The first is estimated to arrive in April, followed by another two in April and December. The RBA’s cash rate curve estimates just a 9% chance of a cut on Tuesday.

The annual rate of GDP fell to a 4-year low of 0.8% and the quarterly read of 0.3% was below the 0.5% estimated. It will be interesting to hear if the RBA acknowledges the soft GDP figures at their meeting on Tuesday, even though the RBA is expected to hold rates at 4.35%.

But, considering the RBA’s cautious approach in general, they’ll likely retain their slight hawkish bias anyway. Besides, they’ll want to see Thursday’s employment figures, and of course the quarterly inflation figures in January before publicly entertaining the thought of a cut.

Employment data remains robust overall, and business confidence from NAB (to be released on Tuesday) reached a 2-year high last month. I do not think the three cuts priced in next year are a slam dunk. Especially if US inflation ticks higher this week, and Trump’s policies turn out to be as inflationary as originally feared next year.

AUD/USD futures – market positioning from the COT report:

• Asset managers increased net-short exposure to AUD/USD futures by 8.4k contracts
• Large speculators decreased net-long exposure by -10.4k contracts
• That’s a bearish shift of ~19k contracts
• Both sets of trades increased gross shorts and trimmed longs

AUD/USD technical analysis

The Australian dollar printed its lowest weekly close in thirteen months, during its most bearish week in 19. Support was found at the October 2022 trendline, but with the daily bearish trend accelerating away from its 20-day EMA, it seems likely we’ll see a break beneath it. Especially with USD/CNH considering a break above 7.3.

AUD/USD likely favours bears seeking to fade into rallies, in anticipation of a break of the 2022 trendline and August low as it heads towards 63c. Which sits conveniently by the lower 1-week implied volatility band.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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