The aussie is trading at more than three-month lows against the dollar and yen
As AUD/USD continues to flirt with a potential move towards the 0.6700 handle, it doesn't look like the aussie side of the equation will provide much relief for buyers going into the RBA decision next week on 4 February.
Let's take a look at why that is the case.
Markets are not expecting a rate cut
Odds of a 25 bps rate cut are at just ~15% going into the decision next week. So, that creates an asymmetric risk for the aussie if the RBA finally decides to muster some courage to surprise markets and try to get ahead of the curve.
In the event of a rate cut, that should exacerbate concerns about the RBA reaching closer to the bottom for rates - seen at 0.25% - and potentially igniting the QE debate.
On the flip side, even if the RBA stays on hold as expected, they will not move away from their dovish bias and will just merely reaffirm the likelihood of another rate cut down the road - either in March or April next.
As such, there is little scope for the aussie to even gain in that scenario considering that markets aren't even expecting it in the first place.
Risk sentiment continues to be dour
Virus concerns continue to grip markets and leave risk assets pressured as seen this week. That is unlikely to go away any time soon as there is still so much uncertainty regarding the situation - especially its impact on the Chinese and global economy.
With the aussie so closely linked to the Chinese economy - businesses and supply chains - the fear is that things may get worse still before they get better and that bodes ill for the aussie currency if we do really go down this path.
As such, if you consider the two key factors driving trading sentiment in the pair right now, they both don't really scream much optimism for the aussie.
From a technical perspective, be mindful of support around 0.6700 in AUD/USD as well as the lows last year around 0.6670-90. If the pair breaches those levels, we could see stops being run and more pain set to follow for the aussie.
