The Australian dollar is set to move higher in the near term
As we are approaching crucial data releases surrounding the Australian economy. The GDP figures are coming up at 01:30 GMT, while we already got Retail sales at +0.2% today - matching expectation as did the move (or better said the lack of a move by the Reserve Bank of Australia.
The main reason behind the fall in the Australian dollar since Monday has been the dismal housing starts numbers released then. We have come to a different juncture as the Reserve Bank of Australia has decided to keep interest rates unchanged and confirmed that it is likely to stay pat for the foreseeable future.
We believe that the GDP growth probably has slowed down somewhat, however the magnitude of the fall remains mostly dependent on the drop in investment in the mining sector of the economy. After the Reserve Bank of Australia has cut its policy rates to 2.5% to compensate for the fall in mining investments and activity, it is prudent to believe that a rate hike is not very close.
However the market has already largely priced in a lot of this into the Australian dollar's current levels. We are of the opinion that we are much more likely to see another go at 0.9400 at this point in time and we will be buying daily calls for an expiration date on the 4th of June.
The perfect level to do this in our opinion is if we see a test of the support line on the chart at 0.9230-35. Alternatively we could manage a test and break of 0.9270, however it has to happen on a sustained hourly basis.
On the downside the risk is if we see a sustained break below 0.9220 and another go at 0.9210. for now this scenario is not that likely, however if we see a dismal GDP number, anything is possible. That said some positive spin for the Aussie could come from Chinese services data which is released on Thursday morning at 01:45 GMT.