Aussie dollar eyes on gains amid MPC meet tomorrow

The RBA has surprised markets twice in the past three months, leading to uncertainty about its May policy decision. Q1 inflation was not low enough to trigger an immediate rate cut, but we believe there is room to cut rates if needed. Home loans to investors dropped 3.5% m/m in February, the sharpest drop in 26 months, and property price increases outside of Sydney and Melbourne have slowed; this should allow more comfort to cut rates.

We expect the Reserve Bank of Australia (RBA) to cut the policy cash rate by 25bps to 2.00% at the Monetary Policy Committee (MPC) meeting on 5th May. This will likely be another close call between easing the cash rate and delaying it to later in the year; we believe the likelihood of a cut is slightly higher. 
We anticipate the positive force of the Australian dollar currently at a three-month high to weigh on the RBA's decision.

Technical Watch:
On a daily chart of USD AUD a shooting star pattern candle occurred during uptrend rally which is a top reversal line. We could foresee this as an early signal of top reversal. We sense the risks are skewed heavily to the upside and expect higher yields over the course of the year against a more positive economic backdrop in the US and Europe. AUD should experience corrective gains in near term in order to factor in all above news on price curve.

Option basket:
Strategy: Bull Call Spread (AUD/USD)

We remain firm on our earlier recommendation of taking as many long positions in futures of AUD as this pair probable to show handsome gains.Or Buying a Call and selling another Call with a higher strike price with the same expiration date for a net premium payable establishes this strategy (BCS). Use this strategy over a long call when the costs of the long options are expensive and the underlying currency is expected to move somewhat higher. Credits from short call reduce the cost of long call.