AUD/USD bears are denied more downside, risk-on into RBA

• AUD/USD is correcting higher as risk-on kicks in.
• The RBA meeting will be a key event for traders.

After what has been a waterfall sell-off in the commodities sphere pertaining to central bank divergences and the latest coronavirus variant seeing its way to all corners of the globe, AUD is finally putting a floor down around 0.70 the figure and making its way back up the leaderboard. At the time of writing, AUD/USD is 0.63% higher towards the close on Wall Street after climbing from a low of 0.6998 and reaching a high of 0.7054 on the day. 

Risk is on which means commodities are bouncing back along with US stocks and yields which have been supporting the greenback and commodity-FX. Additionally, the People’s Bank of China has cut the reserve requirement ratio for banks by 50bps.

''That should provide a welcome 1.2 trillion yuan (USD188bn) boost in liquidity for an economy that has been slowing as the property sector continues to be of concern,'' analysts at ANZ Bank said. While the CNH weakened vs the greenback, the Aussie managed to rally on the news as it improved risk sentiment around global markets for AUD trades as a proxy. 

RBA in focus

However, the main focus for the day ahead will be with the Reserve bank of Australia. Considering that net AUD short positions lurched higher again last week and are elevated reflecting the dovish tone of the RBA, the risk is if there will be any firm hints towards next February's meeting as the start of the wind-down of its bond-buying programme. Westpac, however, said that the RBA ''is unlikely to provide any significantly new guidance.''

''The Governor’s decision statement will be scrutinised for any assessments of the latest round of economic data, including the Q3 GDP, and the shifting external environment, particularly with respect to inflation in developed economies. Governor Lowe continues to emphasise the Board’s patience with respect to the timing of the initial rate increase.'' Westpac remains comfortable with our view that the bank’s first move will come in February 2023 although markets are anxious for a mid-2022 move while the Governor himself is still open to waiting till 2024.