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Sean Callow, analyst at Westpac, explains that the AUD/USD pair has shown every sign of breaking 0.7000 last Friday but ultimately printed a low of 0.7003, which lends confidence to the view that the Aussie has absorbed enough punishment for now in terms of markets pricing in RBA easing.

Key Quotes

“Rates markets price >100% chance of a cut by August which aligns with our view, but the 45% chance of a cut by May seems rather high given the RBA’s current growth forecasts, its neutral rhetoric and the strong labour market data it likes to highlight (the Feb report is obviously keenly awaited next Thursday).”

“Admittedly, AUD’s commodity price support has slipped a little in recent days. But the Aussie still appears to be on the cheap side of the fair value range.”

“Our expectation that the US dollar trades on the back foot around the FOMC meeting should help AUD/USD find buyers on dips near term but the 50dma at 0.7137 and 100dma at 0.7160 will be difficult to break.”