Does The Aussie Face A Bumpy Road Ahead?

 | Sep 02, 2014 01:13AM ET

As we await the Reserve Bank of Australia’s meeting and subsequent announcement this Tuesday, we will be particularly interested in the wording of the statement more than anything, as we (and most of the market) feel that there will be no action taken by the RBA.

Governor Glenn Steven’s statement will be heavily scrutinized though, as the Australian economy is so heavily influenced by the commodity markets, and construction in Asia. As the RBA continues to state that they are fairly uncertain about the Aussie economy, there will be a certain amount of bearish pressure overall on the AUD itself. The real issue for the AUD is the USD and its recent strength. That being the case, the road forward for the Aussie dollar might be a bit uneven.

With that being said, the EUR/AUD pair is one that could be quite a bit different. After all, the European Central Bank is expected to continue expanding monetary policy, so the apparent “steadiness” of the RBA could give the Aussie room to appreciate against the hapless Euro in the near-term. The Euro is of course a bit of an outlier, but with that we feel that the trend is fairly well established at this point.

Ultimately, if the RBA suggests that there is considerable concerns with the Australian economy though, this could reverse the trend. At present time though, one would have to expect the RBA to remain cautious, but not necessarily pessimistic. However, out of the major central banks, this one tends to be the most likely to surprise one way or the other – in my personal opinion. At the present time though, we expect the AUD/USD to flutter around current levels, while the real action is in the EUR/AUD pair. We fully expect that to continue into the fall season as the larger firms come back to work from holiday.