We’re seeing the AUDNZD pare the sharp decline from the previous week ahead of the Reserve Bank of Australia (RBA) meeting on tap for later today, but the rebound may be short-lived should Governor Glenn Stevens show a greater willingness to lower the benchmark interest rate further. Although the RBA is widely expected to maintain its current policy, the uneven recovery in the $1T economy may prompt Governor Stevens to strike a dovish tone for monetary policy, and the central bank head may show a greater willingness to carry out its easing cycle in 2013 as China – Australia’s largest trading partner – remains at risk for a ‘hard landing.’ Indeed, we will maintain our bearish forecast for the AUDNZD amid the deviation in the policy outlook, and will look to sell rallies in the exchange rate as the downward trend from 2011 continues to take shape.
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