BNPP favors fading any AUDUSD bullish rallies

01 November,, London – Following one of the most anticipated Board meetings of the month, the Reserve Bank of Australia (RBA) left interest rates unchanged on Tuesday, but amended their forward guidance to consider a rate cut in the near term.

RBA on hold

Although the rates market was pricing a 30% probability of a 25bp rate cut, the Reserve Bank of Australia left the monetary policy rate unchanged at 2.0%, thus strengthening the AUD a notch further.

The monetary statement highlighted the importance of economic inflation to the central bank. That is, “despite the prospect of some improvement in activity the Bank seems prepared to ease monetary policy on the back of a lower inflation outlook,” notes Australia and New Zealand Banking Group (ANZ). This, therefore, implies that easing during December meeting is unlikely.

“From here on it seems that a rate cut in February is most likely, and the data (both activity and inflation) will have to be sufficiently stronger to persuade the Bank otherwise,” ANZ projects.

Forward AUDUSD projections

Despite the neutral Australian central bank, BNPP favors fading any AUDUSD bullish rallies above the 0.7200 level in the pair for the following three reasons:

First of all, BNP Paribas G10 FX Positioning Analysis points to a lack of sizeable short AUD positions held by currency investors following the last month’s rally.

Second of all, the upward rebound in AUDUSD in the recent days has brought the pair back towards its ‘STEER’ model fair value, indicating that the pear is near its quant equilibrium. Hence, suggesting that further room for a squeeze higher is limited, BNP Paribas adds.

Lastly, the Reserve Bank of Australia remains highly sensitive to the Australian Dollar strength with a focus on the inflation outlook.

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