The RBA has a reputation for communicating policy shifts to journalists before actually going ahead with them so the market is treating the report with respect. Certainly the retail sales data for June was soft, declining by 1% m/m, but not weak enough in our view to require such an aggressive dovish stance by the RBA. It could be that the RBA is responding to developments at the commercial banks that we are not aware of. Either way, the AUD will remain under pressure while this gets priced into the markets. The cross to watch however is NZDJPY. The weakness in AUD will likely drag down NZD with it and put pressure on extreme long NZD positions held by Japanese margin traders. Total long NZD positions at the TFX as of Wednesday were Y162bn, up from Y157 bn on Tuesday and Y145 bn on Monday as the Japanese margin trader relentlessly buys the dips. They will have to fold at some stage and their position reduction will overwhelm the relatively illiquid NZD. Remember the TFX is less than 10% of margin trading activity in Japan, so overall long NZD positions on margin in Japan are likely over Y1.62 tn.

Watch AUD movements ahead of next weeks RBA cash rate announcement and minutes. If price continues to fall prior to announcement, i will look for a rally if cash rate remains at 7.25% and comments are modestly dovish to neutral.

Good luck with your trading and be careful out there.

Chris Lori
CTA

Tags: AUD