Policy Friction Down Under

A more combative RBA leaves us neutral AUD after a long run.

After profiting from being long AUD earlier this year, we have been waiting for better entry levels over the past month to initiate fresh longs.

However, the RBA meeting today has led us to shift our AUD conviction from bullish to neutral, given rising tensions between the central bank and the government over policy actions.

With the government budget coming next Tuesday, an increasingly uncertain economic outlook is emerging, with the net result for consumers unclear.

Add in the inflationary pressure spilling over from the Middle East conflict, and we think the scope for further gains in being long Aussie has now all but evaporated.