31 Jul 2013
Market pricing +90% chance Aug RBA cut, what if they are wrong?
FXstreet.com (Barcelona) - On the back of one of the most dovish speeches delivered by RBA Stevens this year, in which headlines such as "long rise in mining investment is now over, coming fall could be quite big" or "still has some scope to ease after inflation data" crossed the wires, the market is now pricing chances above 90% for a rate cut on August 6th.
What if...?
It seems safe to assume that the overnight index swap market will be right this time around. If, in the unlikely scenario that the RBA prefers to hold the fire this August, the amount of sizeable bids entering the AUD will be mind-blowing though. As reported yesterday, if the assumption by the market backfires, it may set in motion a snow ball trapping on the wrong side of the market the shorts community. A recovery towards 0.93 may not be discarded, yet since the RBA is still seen reducing rates further down the road, thinking about an upside break of the 0.90-0.93 5-week long range is a 'low probability' scenario.
What if...?
It seems safe to assume that the overnight index swap market will be right this time around. If, in the unlikely scenario that the RBA prefers to hold the fire this August, the amount of sizeable bids entering the AUD will be mind-blowing though. As reported yesterday, if the assumption by the market backfires, it may set in motion a snow ball trapping on the wrong side of the market the shorts community. A recovery towards 0.93 may not be discarded, yet since the RBA is still seen reducing rates further down the road, thinking about an upside break of the 0.90-0.93 5-week long range is a 'low probability' scenario.