AUD/USD: RBA and US elections to push for a move below 0.70

AUD/USD witnessed some selling after rising to fresh one-week tops, around the 0.7135-40 region. The prospect of a huge Reserve Bank of Australia (RBA) policy move coming just hours before polls close in the US on November 3 adds to the risks that this “double-header” event may yet push the aussie below 0.70, at least in the short-term, per Westpac.

Key quotes

“A Democratic sweep scenario would arguably tip the scales to much larger and more comprehensive fiscal support. However, while bond markets appear to be leaning towards pricing more risks of a ‘clean sweep’ for Democrats, polls appeared to have narrowed slightly ahead of the second and last US Presidential debate, so which candidate ‘wins’ and what impact that it has on polls will be important for bond and equity investors next week.”

“The RBA looks set to announce sweeping changes including a cut in the cash rate, the 3yr target bond rate and the rate on the term funding facility. The RBA will cut the rate on exchange settlement accounts where banks can deposit cash at the RBA which could see markets begin to intermittently trade negative interest rates here in Australia and will announce a significant move in its bond purchase program to one of purchasing Australian government bonds and semi government bonds, across the curve, including maturities in the 5 – 10-year range. Such a move would bring the RBA more into line with other Central Banks like the Fed, Bank of Japan, ECB etc and that was one factor that drove the Australian dollar down to a four-week low on Tuesday at 0.7021.”

“So the prospect of a huge RBA policy move coming just hours before polls close in the US on November 3 adds to the risks that this ‘Double Header’ event may yet push the AUD/USD pair below 0.70, at least in the short term though record Chinese steel production driving very strong iron ore prices and a rising RMB may limit any dips.”

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