The RBA is facing a growing list of worries likely to weigh on the AUD. A strained property sector in China, concerns over China’s COVID-Zero policy, as well a slump in core commodities like Iron Ore and coal.
So, the chances of the RBA taking a hawkish tilt next week seem unlikely and concerns over slowing growth seem likely to be addressed. Remember that the veteran economist Saul Eslake sees Australia abandoning 50bps rate hike going forward and a steeper slowdown in labour and GDP.
The STIR markets are pricing in an 83% chance of a 50 bps rate hike and 55% chance of a 75bps hike. The best opportunity will come from a lower-than-expected hike of 25 bps and a move towards lower GDP projections.
One option is to short the AUDNZD ahead of the RBA next week. The bond yield spread between the AU10Y & NZ10Y is also pointed firmly lower indicating a divergence in interest rate projections between the RBA and the RBNZ. Furthermore, on the monthly chart, you can see a collection of tailed candles and a rejection of the 200EMA. So, stops can be easily limited with a decent target at near-term daily support underneath.
The major risk to this outlook would be if China’s outlook improves and or a sharp recovery in the Iron ore and coal markets. This can support the AUD.