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AUDUSD precariously perched ahead of RBA

An arm wrestle early on in the Asian time zone today as markets weighed up the upside surprise in the U.S. manufacturing ISM data overnight, against the headwinds that China might ask the U.S. for exceptions to part of the Phase 1 trade deal and that the Chinese officials are considering lowering the 2020 growth forecast to as low as 4.5% due to the virus outbreak.

For most investors, the jury remains out as to whether the virus is going to provide a temporary hit to growth followed by sharp rebound or have a more lasting effect that snuffles out the green shoots evident in the global recovery.

Turning to the main economic event due in the Asian time zone today, the RBA interest rate meeting at 2.30 pm Sydney time this afternoon.

The consensus view is that the RBA will keep rates on hold at 0.75% to assess incoming data. Currently, the market has approximately 20% chance of a cut priced, after being almost 60% priced for a cut in mid-January. The reduction in market pricing follows two stronger than expected jobs numbers and last week’s CPI print.

That said, due to the rising downside risks to growth from the ongoing bushfires and China's coronavirus outbreak, the market does appear to be under-pricing the chance of a pre-emptive RBA rate cut this afternoon.

Chart wise after the neckline of the head and shoulders top .6850/30 gave way, it's been one-way traffic for the AUDUSD as it broke below the December .6754 low, to be now sitting on major support in the form of the October 2019, .6671 low.

The decline displays impulsive characteristics and thus far has only unfolded in three waves which suggest there is still a minor Wave iv bounce and Wave v lower to come. In this context, a break of the October .6671 low would then open a move towards the next downside target at .6550. Sellers are likely to emerge on bounces ahead of resistance .6750/70.

AUDUSD precariously perched ahead of RBA

Source Tradingview. The figures stated areas of the 4th of February 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

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