AUDUSD heavy with rate cut being increasingly priced in by FX Charts

After the steep falls earlier in the week the Aud took time out to draw breath on Friday, which it could well continue to do ahead of tomorrow’s RBA decision, although today will see some action too after the release of the AIG Performance of Mfg Index and the TD Inflation data. The weekend release of the China Mfg PMI (49.8 v previous 50.1) has seen the Aud come under early pressure, opening around the trend lows of 0.7730, but so far holding 0.7700.For the time being, the Aud could remain close to the 200 Month MA after having finished the week right on it at 0.7760. As for tomorrow, the jury seems pretty much split on whether the RBA will or won’t ease rates, but the recent price action has largely priced in a cut so the real risk may be on the upside should the RBA decide to wait and see how the lower currency flows through to the overall economy.

I have been of the opinion that the RBA will not cut in February but I notice in today’s press that the SMH warns that a cut is coming. If they do  not cut rates, then we could see a nasty short squeeze, in which case the Aud would head back above 0.7800 and on towards  the first Fibo resistance, currently at 0.7837 (23.6% of 0.8230/0.7720) and to the 100 HMA, currently at 0.7875. Beyond this, the 38.2% Fibo level at 0.7913 and then the 200 HMA at 0.7960 would attract, although I think any move towards/above 0.7900 would be a good sell area ahead of a resumption of the longer term down trend.

If the RBA do cut, then the 0.7720, current trend low will come under pressure ahead of the July 2009 low at 0.7700. This should provide strong support, although it is not far away and if taken out, the next stop for the Aud would most likely be at the Fibo extension level at 0.7655 (100% of 0.8230/0.7857 from 0.8003). Beyond here we are looking at the RBA’s stated target at 0.7500,  beneath which there is little real support for the Aud until the next major Fibo supports to be seen on the monthly chart (below) at 0.7204 and then at 0.7183 (76.4% of 0.6006/1.1082 and 61.8% of 0.4773/1.1082). If/when seen, this area should be extremely strong support.

Economic data highlights will include:

M: AIG Performance of Mfg Index, TD Inflation

T: Building Permits, Trade Balance RBA Decision/Statement

W: AIG Performance of Services Index

T: Retail Sales, NAB Business Confidence

F: RBA MP Statement.