RBA to Hold Rate at 3.50% - Dovish Commentary Likely

The Reserve Bank of Australia is expected to keep its key rate on hold at 3.50% on Tuesday, according to a Bloomberg News survey. In fact, none of the 24 economists surveyed predict there will be a change in rates. Interest rate expectations are plummeting for the Australian Dollar, with the Credit Suisse Overnight Index Swaps showing 100.0-basis points priced out over the next 12-months. Nevertheless, swaps are only suggesting a small 15.0% change of a 25.0-bps rate cut.

Given the recent outflow of data out of China (with the August PMI Manufacturing showing contraction), there is little chance of hawkish commentary; we expect the Reserve Bank of Australia to issue a dovish position. Accordingly, we expect the Australian Dollar to sell-off. If the AUDUSD rallies, we don't expect price to exceed 1.0400, and rallies should be sold. Key downside support comes in at 1.0170/80.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher's e-mail distribution list, send an e-mail with subject line "Distribution List" to cvecchio@dailyfx.com