Ahead of next week’s RBA policy meeting, AUDUSD continues to bleed, with the pair refreshing Mid-October lows below 0.68 these days. Weakness in the aussie is primarily due to a robust dollar demand but in a wider picture, weak economic fundamentals in Australia also matter. Last month, employment in the country registered the biggest decline in three years, inflation is still below the target level while purchasing managers indices signal contraction in activity, both in manufacturing and service sector.
Against this backdrop, it seems reasonable for the central bank to step up with additional measures to support the ailing economy. But for now, the Reserve Bank of Australia is likely to stay on hold in order to access the effect from three rate cuts since summer. Also, there is heightened uncertainty around the US-China trade negotiations. In this context, striking at least a partial deal will substantially ease investor concerns over the outlook for global economy and thus could ease the downside pressure on risky and commodity assets including aussie. Another argument for the RBA to refrain from another rate cut next week is a pause in easing by the Federal Reserve which prompts the Australian regulator to shift into a wait-and-see mode as well.
So, as the rates will stay unchanged on December 3, the central bank’s rhetoric will matter for the market. Should monetary authorities express concerns over the national economy, traders will take it as a hint at further rate cuts next year, which would be a clearly negative scenario for AUDUSD. In this case, the pair may drift even lower, to fresh lows below 0.6750, with the next significant support level comes at 0.6720.
Also, traders will pay attention to fresh economic data out of Australia due next week. Among them are retail sales, GDP, trade balance and building approvals. If the figures disappoint, they will come as the additional bearish driver for the AUDUSD pair. In case of positive surprises, however, aussie could stage a local recovery but will likely stay below the 100-DMA anyway.
