AUD/USD: 0.9065EUR/USD: 1.3265RBA Governor, Glen Stevens, did not muck about when he put the boot into the Aud yesterday and gave the bulls a serious headache in sending it down to a session low of 0.9043, on the back of his statement that the recent fall in $A makes economic sense and that the RBA still has some scope to ease rates. Further, he said that it would be no surprise if the Aud were to fall further given that the long rise in mining investment is now over and that the coming decline in resources investment could be sizable.
This all came after the terrible Building Approvals data (-6.9% mm against expected +2%, -13% yy / exp 0.0%) and suggests that an August rate cut is almost a rating certainty (OIS swaps suggest 85% chance of a cut).
With a cut now pretty much written in, the next test of 0.9000 does not seem too far away, but ahead of the US data I would be a little surprised if we were to break the recent 0.8998 low.
If the US$ takes a hit following a dovish outlook from the FOMC, then we could see a recovery in the Aud, with sellers likely to be seen at 0.9100 and above here at 0.9140 (38.2% of 0.9280/0.9043) and then 0.9170 (50%) ahead of 0.9200 (61.8%).
On the downside, below 0.8998 (12 July low), would see a continuation lower, potentially accelerating towards 0.8850, where I would be squaring up short positions at the first attempt given that this is the base of the longer term descending channel.
We get the domestic New home Sales data today which could add further downside pressure, but I suspect 0.9000/0.9100 should cover it until the major event risk later in the session Short term rallies still look like selling opportunities ahead of a test of levels sub 0.9000, albeit possibly not during today's Asia session.
If the Fed are more upbeat than expected and suggest tapering, sooner rather than later, the Aud is likely make quick work of the 0.8998 low and will head quickly to 0.8850 and eventually to our long held target at 0.8770.
Economic data highlights will include:
HIA New Home Sales, Private Sector Credit
