We recently argued both the AUD and the NZD have rallied a lot more than would have been suggested by movements in the rates market. In other words, it appeared as though the FX market was looking for some hawkish stance from the central banks that the rates market was not. That the RBA did not validate this hawkish bias at yesterday’s meeting means that AUD should now correct lower.

The RBA continued to warn about the negative consequences of a stronger AUD. The RBA’s
language on the currency was more explicit, stating that ‘an appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast, from previously warning about the complications that a stronger currency would bring.

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As currency strength continues to suggest that the RBA is not looking to hike in the near-term, there is little reason to buy AUD. That AUD-USD fell even as June building approval data registered strong and above consensus growth is a clear sign to us that the rally is over-extended.

Our strategy for next couple of days is to sell AUDUSD at 0.7948. Our target is 0.7650. Stop loss at 0.8100.

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