It’s a surprise to see AUD/USD so weak today after the China PMI hit a two-year high. The US dollar is broadly strong but AUD is down against everything (except JPY).
Part of the reason is the market pricing in a higher chance of a rate cut on Feb 6. Since the lower-than-expected CPI on Tuesday, the OIS market has shifted to a 41% chance of a cut from 34%.
I don’t see the case for a rate cut. The slowdown in mining (see South Africa) is a concern but there are positive signs on Australian mining as well.
The drop in AUD/USD today looks entirely technical to me. The breaks of 1.0500 and 1.0470 started some cascading stops that were finally halted by bids at 1.0450.
With the break of the recent range, the Australian dollar has the potential to slide all the way to 1.0350 but in the near-term, the move might be overdone.
