Fed Governor Lisa Cook Warns Inflation Risks Remain as Rates Stay Steady 
Bank of Canada Holds Interest Rate at 2.25% Amid Trade and Global Uncertainty 
RBI Holds Repo Rate at 5.25% as India’s Growth Outlook Strengthens After U.S. Trade Deal 
BOJ Rate Decision in Focus as Yen Weakness and Inflation Shape Market Outlook 
Fed Confirms Rate Meeting Schedule Despite Severe Winter Storm in Washington D.C. 
RBA Expected to Raise Interest Rates by 25 Basis Points in February, ANZ Forecast Says 
Why Trump’s new pick for Fed chair hit gold and silver markets – for good reasons 
Bank of England Expected to Hold Interest Rates at 3.75% as Inflation Remains Elevated 
Driving Forces:
RBA has more reasons for further monetary policy easing. The RBA assumes inflation expectations will return to their long-term average, whereas we see a risk that they stay low for longer, helping cement low actual inflation. There has been a widespread decline in inflation expectations.
The further unwinding of the political risk premium and short positioning for the MXN. More focus on AUD fundamentals.
Stabilization of oil price to crawl higher over the next quarters as base metals to underperform the energy sector.
FX markets have tunnel vision. Fed Chair Yellen’s speech at Jackson Hole will be the key catalyst for a move, but even then it is not clear that broad ranges are set to break for the AUD. Downside risks remain, but a move below USD0.74 remains a big ask.
Trade Mechanism: Entry - 14.0270, 1y target: 12.50, stop: 14.70, Carry: approx.+2.9% p.a.
Risk Profiling: How much would USD/MXN rise if Donald Trump were to win the US presidency? And how much would AUD/USD fall? Certainly, the Trump risk is more fully priced into the MXN than the AUD, and this would limit the extent of the loss from his winning. Current pricing seems to overstate the risk (which we estimate at 25%).
