Synopsis:

HSBC maintains a bullish stance on the AUD despite potential for a near-term pullback, with tonight’s Australian CPI print in focus.

Key Points:

• Current Movement: AUD/USD is trading sideways as markets await Australia's July CPI data. The AUD has benefited from the recent USD retracement throughout August.
• Market Sentiment: There is a possibility of a correction in AUD due to a shifting macro-environment, including reduced short positions in EM Asia, lowered Fed rate cut expectations, and a return to overweight equity positions.
• RBA’s Stance: HSBC anticipates that the AUD will have downside protection due to the Reserve Bank of Australia's hawkish stance, particularly as other central banks move towards rate cuts.
• CPI Expectations: The broad expectation is for tonight's CPI print to indicate ongoing disinflation. However, HSBC believes this alone won't shift the RBA from its "restrictive-for-longer" policy.

Conclusion:

HSBC remains bullish on the AUD, even as a near-term pullback is possible. The upcoming CPI print is crucial, but the RBA's hawkish stance should provide support for the AUD.