The RBA Downgrades – TDS

Analysts at TD Securities expect the RBA to keep rates on hold at its upcoming meeting on Tuesday as domestic fundamentals have turned more positive since late last year.

Key Quotes:

“Tuesday's RBA meeting is a key focus for G10 FX markets in the early part of the week. We are looking for an on-hold decision and think the same is likely at their March meeting. Previously, we had anticipated the RBA cutting the cash rate next month. This view was based predominantly on domestic fundamentals, but the tone of data turned more positive since late last year.”

“AUD has come under significant selling pressure in recent weeks. These declines have seen AUDUSD push below the 0.67 mark in recent days — a push below the October trough at 0.6671 would see the pair at its lowest level since the aftermath of the Global Financial Crisis. Our expectation for a dovish hold this week could certainly see AUDUSD test this low. Beyond that, however, we think the AUD has a lot of bad news in its price. That said, we prefer to be careful and selective in leaning against the market's pervasive AUD bearishness.”

“With the viral outbreak still yet to peak, we think it is probably too early to fade the market's risk-off bias entirely. Instead, we choose to express a more nuanced AUD outlook against currencies where we think the market has mispriced underlying risks. As we note above, sterling stands out here. GBPAUD longs look particularly stretched on our HFFV metrics while the technical backdrop has deteriorated substantially. In line with this, we are entering a short GBPAUD position as our Trade of the Week.”