AUD/USD: Dovish RBA and stingy Australian government weigh on the aussie – OCBC

The AUD/USD pair traded lower on Tuesday as risk fizzle out after the Trump headline. Also, the lower than expected fiscal package from the Australian government and a dovish Reserve Bank of Australia (although not more dovish than expected) further added pressure to the aussie. Terence Wu, FX Strategist at OCBC Bank, has not changed his defensive posture for now, staying positive on the USD against the AUD. Nevertheless, stay nimble on shifting political winds. 

Key quotes

“Notably, aside from a commitment to address unemployment, there was not much was said about a rate cut ahead. The RBA probably does not want to pre-commit to any movement, doing just enough for the market to sense a tilt towards the dovish side. Aside, the new Australian fiscal budget was also slightly smaller than expected.”

“Assuming that Trump doesn’t flip-flop on his stance on the fiscal stimulus package, we think remnant hopes of reviving the risk-on, reflation trade may be put to rest for now. Our defensive stance is likely still warranted going ahead. Watch also for any shifts in the polling numbers, especially with Trump back in business and after his latest gambit. Any signs that the ‘Blue Wave’ is getting pushed back should be near-term supportive for the USD.”

“Looking forward, expect the AUD to trade heavy as markets drift further into risk-off. Support is now at 0.7100 with 0.7000 next in line if breached.”