Will a cut and an increase in QE stifle the AUDUSD RBA Preview

After a series of dovish communique from the RBA, the expectation is the RBA will cut the cash rate from 0.25% to 0.1%, cut the 3-year bond yield target from 0.25% to 0.1% and cut the term funding facility rate from 0.25% to 0.1%.

Also expected, a change to the RBA’s bond purchase program (QE). The RBA’s QE program aimed to support the smooth function of the bond market following the onset of the pandemic and to anchor the 3-year bond yield to the RBA’s 0.25% target rate.

On Tuesday, this program is expected to be extended further out along the curve to include purchases of bonds with 5 and 10-year maturities aimed at lowering long end yields towards levels comparable in other developed markets.

In theory this will reduce foreign demand for Australian bonds and in turn reduce demand for the AUDUSD. A lower exchange rate helps to improve Australia’s international competitiveness by stimulating demand from offshore and help support domestic employment and inflation objectives.

There is some conjecture whether the RBA should set a specific quantity and timetable for the purchase program. The current market consensus is for around $100bn or about $8.5bn of purchases per month.

As this amount is likely already “priced in” it is likely to take a larger amount to wrest control of the AUDUSD’s fortunes from the pandemic and the U.S. election in the short term.

Technically, the corrective price action in the AUDUSD from the September .7414 high is now ending its eighth week.

Should the AUDUSD break/close below the support near .7000c the correction is expected to deepen towards wave equality support and the 200-day moving average .6840/.6800c area.

A pullback into the aforementioned support zone combined with signs of stabilization would be looked at closely for a medium-term AUDUSD buying opportunity. Keeping in mind a break/close above .7200c would be initial confirmation the uptrend has resumed.

Source Tradingview. The figures stated areas of the 29th of October 2020. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.