Broad declines in commodities like oil and gold led the Canadian, New Zealand, and Australian dollars lower, but AUD/USD took a particularly hard hit thanks to dovish sentiment by the Reserve Bank of Australia.
Indeed, the RBA left rates steady as expected at 7.25 percent, but the Board’s policy statement was straightforward in suggesting that their next move would likely be a rate cut, as they said, “with demand slowing, the Board’s view is that scope to move towards a less restrictive stance of monetary policy in the period ahead is increasing.” While the most recent CPI numbers were surprisingly strong, indicators of economic growth in Australia have been broadly weak and the upcoming releases of the Home Loan Index and AiG’s Performance of Construction Index are anticipated to reflect the same thing. Likewise, Canada’s Ivey PMI report is forecasted to fall to a reading of 61.0 from 69.6 in July, pointing towards rapidly deteriorating business activity. [B]My fundamental bias for the Australian and Canadian dollars on Wednesday: bearish. [/B]However, traders should beware of sharp moves in oil and gold, as this could shake up the currencies.