The AUD/USD pair fell on Tuesday as the Reserve Bank of Australia cuts rates by .50 percent during the early part of the session. This of course led to Aussie selling, and as a result the pair poked back below the 1.04 handle again.
The fact that the central bank decided to cut rates more than anticipated suggests that there are more worries out there for the RBA than traders are willing to admit. This will certainly have some traders concerned, and as a result this pair could struggle going into the future. However, it should be noted that the Europeans weren’t trading during the session, and this means that the market hasn’t fully expressed its opinion in this pair yet.
The pair fell back down to the 1.03 level, but bounced a bit in the end. The level that we are seeing at the end of the day isn’t much in the way of a change after the initial knee-jerk reaction. This will of course catch the eye of traders out there, and it leads us to think that perhaps the downside is somewhat limited in the Australian dollar.
Also, one has to think about the fact that there is a suggestion in the markets that the Federal Reserve could be easing a bit further in to the later part of the year, and this would help alleviate some of the interest rate swap differential lost for the pair over the last 24 hours. The Federal Reserve hasn’t explicitly stated when they would ease, but the simple fact that Ben Bernanke is willing to say that there are more easing tools they could use if the economy gets worse suggests to a lot of traders that the Fed will be loosening yet again. This will certainly push this pair higher as the gold markets will heat up at that point.
The Non-Farm Payroll numbers come out on Friday, and this could move the market as well. Because of this, we suggest that the pair could be somewhat consolidative in tone until then. At this point, we are flat of this market until we get more clarity, perhaps at the end of the Wednesday session.
Written by FX Empire