Citi maintains a USD bullish bias and discusses its expectations for this week's RBA August policy meeting.
"CitiFX Strategy states that the FOMC is not as dovish as market thinks; low unemployment and the price-wage spiral are likely to push the Fed to hike more than priced – this should be USD supportive until the growth outlook re-rates higher. In their view, this is corroborated by the 2s5s YC, now at -21bps; the yield curve inversion should maintain pressure on risk and lift the dollar higher against the EUR and commodity/high beta FX," Citi notes.
"CitiFX Strategy says that the RBA is broadly expected to hike its policy rate by 50bp, from 1.35% to 1.85%, at its board meeting on August 2 tomorrow. We ascribe a subjective probability of 85% to this scenario, with a sub-scenario for a 25bp rate hike (10% subjective probability). With risk preferences recovering around the world, AUDUSD is also likely to recover continuously for now, but we are skeptical as to whether it can exceed the 100-day moving average (around 0.712 now) in the near term," Citi adds.