The latest, slightly less hawkish, RBA minutes said that they’d be keeping a close eye on the next CPI number. This will be released later this morning and the market is expecting a quarterly increase of 0.7%. Any number lower than this improves the chances of an interest rate cut whereas any number equal or marginally higher, will keep the status quo in place for the rest of the year.
The big topside target is 1.1010 in AUD/USD.
If the US were to default on its debt, then the whole game changes but I’m presuming that this is still very unlikely. Some sort of last minute plan will happen but this is going to involve some large spending cuts, in an economy which is struggling to get back on its feet. If the world’s biggest economy suddenly starts shrinking again, this cannot be good for FX risk trades and my thinking is that the AUD might be one of the bigger sufferers in the medium term. I’m happy to sell AUD rallies, especially on the crosses and I think EUR/AUD might be the way to play it.
