AUD/USD risks of further losses below 0.7450 - BBH

According to analysts from Brown Brother Harriman, the Australian dollar remains vulnerable because of risks of a rate cut from the RBA increasing and after the latest numbers from the US economy.

Key Quotes:

“The $0.7470 area the Aussie tested yesterday and today correspond to a 38.2% retracement of that advance since late-May. The 100-day moving average is near $0.7485. The 50% retracement is found a little ahead of $0.7410, and the 61.8% retracement is near $0.7350.”

“Two things are happening. First, the risk of a rate cut by the Reserve Bank of Australia for next month has increased.  Soft data and the RBA's minutes have encouraged such speculation. The key is seen to be the Q2 CPI report next week. Confirmation that prices pressures are weak will fan expectation of a cut in August. In Q1, Australia's CPI  fell 0.2% for a 1.3% year-over-year rate. Second, the strength of US economic data and comments from some regional Fed Presidents has investors reassessing the likelihood of a rate hike later this year.”

“The likely divergence of monetary policy and the late market positioning leaves the Australian dollar vulnerable to a greater shake out. The pullback in gold and copper prices are additional weights on the Aussie. Technical factors also warn of the risk of further losses if the $0.7450 area yields.”