Interest rate and FX market moves around this week’s RBA announcement were a classic case of “buy the rumour, sell the fact”. The central bank’s move to a neutral bias saw AUD fall back from recent highs and AUD/CAD in particular failed above 0.90 once again. But interest rate markets still price a highly front end loaded tightening cycle in Australia relative to Canada. The near term risk is that AUD/CAD continues to correct lower, reversing the rally of the last two weeks to test support at 0.8800, particularly so if the evidence continues to point to downside risks to Chinese growth and upside risks to US growth.
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