Australia : Elections and RBA

RBA today and elections on Sunday.

Sept. 2 (Bloomberg) — The Reserve Bank of Australia will
cut interest rates within 100 days of the Sept. 7 election,
credit markets show, a boost for whoever wins office.

Traders are pricing in a 57 percent chance Governor Glenn
Stevens and his board will lower the overnight cash-rate target
by 25 basis points to a new record 2.25 percent by December,
data compiled by Bloomberg from swaps contracts show. Markets
see little chance of a cut at tomorrow’s RBA meeting.

Source : Bloomberg

“The Reserve Bank is likely to keep the cash rate on hold as it waits on the outcome of the federal election and allows its August rate cut to have its full effect.

All fourteen economists surveyed by AAP expect the RBA to keep the cash rate at the record low of 2.5 per cent when it meets later on Tuesday” Source : Business Spectator

So much priced in and the AUD/USD holding above 0.90 this morning after breaking out of the downtrend channel yesterday. Markets are running at quite record short for spec accounts. Thus we should expect short covering into the weekend ?

Not quite as I would not underestimate the power of specs and the correlation with SHCOMP for the AUD.

My expectation is for the AUD to be resisted at 0.9040 and a drift lower in the days ahead into the cliff hanger elections which does not bode too well for market stability.

Verdict : Sell AUD target 0.8880. I know I am wrong if 0.9050 breaks.