Central Bank Watch: BOC, RBA, RBNZ Interest Rate Expectations Update

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/CAD prices may continue to fall.

Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USD/CAD-bearish contrarian trading bias.

RESERVE BANK OF AUSTRALIA SUCCEEDING IN PUSHING BACK

The RBA appears to be diverging from its major counterparts, insofar as steps towards removing stimulus or tightening policy by the BOC (reducing QE) and the RBNZ (introduction of the housing remit) have been met by stronger efforts by the RBA to prevent long-end Australian bond yields from rising. The RBA has been fairly transparent, however, suggesting that they will keep stimulus efforts in place until headline Australian inflation returns to its +2-3% target band; in 1Q’21, it was a mere +1.1% (y/y).

RESERVE BANK OF AUSTRALIA INTEREST RATE EXPECTATIONS (MAY 25, 2021) (TABLE 2)

Central Bank Watch: BOC, RBA, & RBNZ Interest Rate Expectations Update

As noted previously, “market participants don’t seem convinced that the RBA will cave in on their yield curve control efforts to keep the main rate at its current level or lower through at least March 2023.” According to to Australia overnight index swaps, there is a 26% chance of a rate cut through December 2021, up from 17% the last time we checked.

IG CLIENT SENTIMENT INDEX: AUD/USD RATE FORECAST (MAY 25, 2021) (CHART 2)

Central Bank Watch: BOC, RBA, & RBNZ Interest Rate Expectations Update

AUD/USD: Retail trader data shows 48.54% of traders are net-long with the ratio of traders short to long at 1.06 to 1. The number of traders net-long is 10.28% lower than yesterday and 0.28% higher from last week, while the number of traders net-short is 13.13% higher than yesterday and 5.60% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests AUD/USD prices may continue to rise.

Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed AUD/USD trading bias.

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