A preview of the Reserve Bank of Australia meeting today from HSBC gleaned from their latest "FX and Rates" note

It's a long piece, so in brief the main points 9bolding mine):

The FX market has become fixated with the idea that G10 central banks are rushing towards the exit from unconventional monetary policy

  • USD started this trend, ... More recently, the EUR has gained on similar expectations ... The CAD also appreciated sharply when in mid-June the BoC signalled a rate hike,...
  • With this strategy having worked so brilliantly with the USD, EUR and CAD, the FX market is now willing similar returns in the AUD and NZD.

The AUD in particular looks too high relative to recent rates movements, while the NZD may also be trading at too lofty a level

  • Neither the RBA nor the RBNZ are in any rush to tighten monetary policy. The upcoming policy meetings (1 August for the RBA and 9 August for the RBNZ) may be the catalyst for an FX reversal.
  • If the RBA and RBNZ do not validate the FX market's hawkishness, both currencies could fall sharply.
  • There is also a growing risk that policy makers actively push back on FX strength as in the past


Earlier previews: