As this Sydney Morning Herald article points out, the general economy in Australia is struggling and the high AUD is not helping.
The RBA signposted after their last meeting that they would cut rates by 25 bps if the CPI number came in at the bottom end of expectations, which it did. The fact that the economy is struggling will make it easier for them to cut, but I think the market is probably getting a bit carried away with talk of a 50 bps cut, or even back-to-back 25 bps cuts. The unwillingness of the big 4 Australian banks to pass any full rate cut on to its customers will remain a big part of the RBAs thinking.
AUD remains in demand amongst Sovereign players and reserve managers so I don’t expect a collapse any time soon but rallies should also meet with plentiful supply amid falling interest rates and a softening economy. I’d expect AUD/USD to trade in a broad 1.0250/1.0650 range for the next few weeks and my bias is still to sell rallies.
