Scenario 1: The EFSF gets agreed upon this week and everyone loves it, stops get triggered in some large EUR short-covering. Optimisim grows across all markets, meaning its easy for the RBA to cut rates by 25bps. This would create the classic ‘scissors’ move in the EUR/AUD cross leading to sharp gains.
Scenario 2: EFSF falls in a heap and the EZ cannot agree on anything. The EUR would fall sharply, but so also would the AUD as risk aversion increases. The RBA would definitely not cut rates.
Therefore, I think the trade is to wait for scenario 1 to start developing. As soon as the EFSF is announced and well received, then start buying EUR/AUD as the RBA will then almost certainly cut rates. (Even better if you can pick them up towards the lower end of the present 1.30/1.40 range).
