The Reserve Bank of Australia is expected to keep its key rate on hold at 3.50% on Tuesday, according to a Bloomberg News survey. In fact, none of the 24 economists surveyed predict there will be a change in rates. Interest rate expectations are plummeting for the Australian Dollar, with the Credit Suisse Overnight Index Swaps showing 100.0-basis points priced out over the next 12-months. Nevertheless, swaps are only suggesting a small 15.0% change of a 25.0-bps rate cut.
Given the recent outflow of data out of China (with the August PMI Manufacturing showing contraction), there is little chance of hawkish commentary; we expect the Reserve Bank of Australia to issue a dovish position. Accordingly, we expect the Australian Dollar to sell-off. If the AUDUSD rallies, we don't expect price to exceed 1.0400, and rallies should be sold. Key downside support comes in at 1.0170/80.
--- Written by Christopher Vecchio, Currency Analyst
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