As we move away from geopolitical concerns, the aussie focus will turn towards the RBA meeting next month
The aussie has made a dramatic climb down from just above 0.7000 to current levels to start the year but to say that we have found a bottom would be too naive.
Geopolitical tensions may be ebbing and risk trades may look forward to a more steady period but the aussie may be one of the underperformers despite the improving outlook.
Price is settling below its 200-day MA (blue line) and continues to hold below both its key hourly moving averages. That hints at a more bearish near-term bias as sellers will be eyeing to test support at around 0.6850 once again.
Looking further out, there is room for sellers to roam if markets start to believe that the RBA is on course to cut rates in its 4 February meeting:
Cash rate futures see chances of that as being 50-50 right now so that leaves quite a lot of space for traders to work with in the coming weeks.
As such, the spot to watch here will be key Australian economic data.
The first hurdle for that will come tomorrow when we have November retail sales data. Following which, we will have the December jobs report, arguably the most important data release before the RBA meeting, on 23 January.
After that, we will have a couple of PMI data for January and then business confidence data before getting into the Q4 CPI report on 29 January.
If we do see some significant deterioration in economic sentiment from the data releases above, expect that to be the trigger for markets to price in a 25 bps rate cut by the RBA further; vice versa.
The aussie may take heart in the more positive risk mood for now but for it to really bounce, it needs the support of domestic economic conditions and that remains a tall order in my view. As such, the currency may remain vulnerable to further downside as mentioned.
