The aussie remains vulnerable to a surprise rate cut decision by the RBA
AUD/USD is trading a little higher on the day with price now creeping back above 0.6700 as we see calmer tones to start the European morning. US futures are still up by 0.6% while Treasury yields are also holding higher, 10-year yields up 3 bps to 1.537%.
In turn, that is pushing AUD/JPY higher and the aussie is also benefiting from the slightly better risk mood to start the new week.
That said, there are still asymmetric risks for the aussie going into the RBA policy decision tomorrow on 4 February. Currently, odds of a 25 bps rate cut are only at ~22%:
In effect, it means that if the RBA does surprise markets - highly unlikely - then it would spell major downside for the aussie as this isn't priced in yet.
Add that to the fact that AUD/USD is in a precarious spot, trading just above the resistance region around 0.6675-90, we could see losses accelerate if the pair breaks below that and runs fresh stops towards levels last seen in 2009.
But if the RBA keeps on hold as expected, some short covering may be due but I wouldn't expect too much upside in the currency.
The 100-hour moving average @ 0.6728 will be the first line of defense for sellers but any significant move towards 0.6800 should be easily faded unless we start to see coronavirus fears abate in the coming days/week.
