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AUDCHF – Prime for a Break
The Australian dollar is in play this week with a RBA rate decision, retail sales, trade and PMI reports on the calendar. A small group of investors are looking for the RBA to ease and while we do not believe that the economy deteriorated enough to warrant the third rate cut this year, there are many reasons for the Reserve Bank to be dovish. Last night we learned that manufacturing activity slowed significantly and while service sector activity numbers won’t be released until after the RBA meeting, the drop in construction sector activity indicates that the slowdown is not limited to manufacturing. Labor market and inflationary conditions also softened since the last meeting and imports from China plunged. While the RBA will be encouraged by the recent easing from the PBoC and improvement in market indices, China’s response is to slowing growth. We have chosen to sell AUD versus CHF because there is little Swiss Franc risk and more importantly, on a technical basis, the franc appears to be due for a deeper correction.
Technically AUD/CHF is trapped between 2 important moving averages – above we have the 200-day SMA at 72 cents capping gains and below the 100-day SMA hovering just a hair above 70 cents supporting the pair. The RBA rate decision will a trigger a break of one of these moving averages and we believe that support will give, ending the pair down to the October 21st low of 0.6873.