AUD/USD Fundamental Forecast – May 4, 2016

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Published: May 3, 2016, 03:38 UTC

The AUD/USD added 34 points to 0.7702 ahead of the RBA decision due later today. Most traders are hedging that the RBA will not increase rates but will

AUD/USD Fundamental Forecast – May 4, 2016

The AUD/USD added 34 points to 0.7702 ahead of the RBA decision due later today. Most traders are hedging that the RBA will not increase rates but will talk down the Aussie. The Aussie is also benefiting on the weak US dollar and declining Chinese PMI data might push the PBOC to additional stimulus.

Last week, a quarterly measure of inflation came in well below expectations, stoking a massive run-up in expectations for a hike at Tuesday’s meeting. The currency fell 2.1% after the inflation report—its largest daily drop since June 2013. And investors say it could weaken further if the RBA goes ahead with a rate cut.

Regardless of the central bank’s decision, it is likely we’ll see a strong reaction in the currency. But if the bank follows through with a cut, a sharp selloff could materialize, market strategists said.

The Aussie is widely viewed as a proxy for investors’ economic views on China. The currency often reacts strongly to Chinese economic data. But the shifts in investors’ expectations for a possible cut are more firmly rooted in the domestic economic outlook. Namely, a recent report on Australian inflation which came in unexpectedly weak per Marketwatch.

China’s manufacturing sector expanded less than expected in April, raising doubts about the sustainability of a recent pick-up in the world’s second-largest economy.

The official purchasing managers’ index (PMI) was 50.1 in April, easing from March’s 50.2 and barely above the 50-point mark that separates expansion in activity from contraction.

Analysts polled by Reuters had predicted the reading would improve to 50.4, after upbeat March data fueled hopes that the country’s prolonged economic slowdown was easing.

FxEmpire provides in-depth analysis for each asset we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more up to the data analysis and information in our weekly reports, which covers the current week and are published by Sunday before the new week begins. Daily we share any new events, forecasts or analysis that affect the current day. To achieve a full accurate understanding it is important that you study all of our data and analysis as a whole.

Upcoming Economic Events that you should be monitoring:

Wednesday, May 4, 2016

Cur.	Event	Actual	Forecast	Previous
	Japan – Constitution Day
AUD	Building Approvals (MoM) (Mar)		-3.0%	3.1%
CNY	Caixin Manufacturing PMI (Apr)		49.9	49.7
AUD	Interest Rate Decision (May)		2.00%	2.00%
GBP	Manufacturing PMI (Apr)		51.2	51.0