TEFLON COATED: Nothing bad is sticking to the Australian dollar

Photo by Frazer Harrison/Getty Images

The Australian dollar might as well be Teflon coated at present. No matter what bad news is thrown at its way, it simply refuses to stick.

This was no better demonstrated that the price action witnessed on Monday.

After gapping lower on the open following an incredibly tight election outcome over the weekend, the Aussie ground higher over the course of the Asian session, finding strength as Chinese stocks and commodity futures ripped higher.

From a low of .7444, the AUD/USD eventually closed Monday trade buying .7534, up 0.55% for the session.

It has now rallied for five straight sessions, extending its gains from the low of June 28 to 3%. The winning streak is now the longest seen since mid-March.

Brexit. Prospect of a hung parliament in Australia. Potential AAA ratings downgrade. Not enough to stop the Teflon-coated Aussie, as seen in the chart below.

AUD/USD Hourly Chart

Looking ahead to Tuesday trade in Asia, the movements in the Aussie are likely to be dictated by one thing and one thing only: the RBA rate decision, especially the wording of its monetary policy statement.

Yes, there is a raft of domestic data released during the session — none less than retail sales and international trade figures at 11.30am AEST — but in reality it and other releases will simply provide a sideshow to events at 2.30pm AEST.

“Today’s RBA’s meeting is the first for a major(-ish) central bank since the UK voted to exit the European Union,” said Joseph Capurso, senior currency strategist at the CBA. “Market pricing implies a negligible 12% chance that the RBA cuts the cash rate and we agree. We do not expect the RBA to provide any forward guidance either.”

The forward guidance that Capurso refers to is the RBA’s rates bias, found in the final paragraph of its monetary policy statement. It is this section of the monetary policy statement that markets will be focused on, with the wording likely to drive the price action in the Aussie in the immediate aftermath of the release.

While others believe that the RBA will tweak the bias to indicate that another rate cut is likely, known as an easing bias, Capurso believes that an absence of an easing bias will help drive the Aussie even higher.

“We retain our optimistic view that AUD/USD will grind higher this week, particularly if equity markets continue to recover.”

For all those looking for further information ahead of the RBA decision, this quick 10-second guide will help bring you up to speed.

Here’s the current Aussie dollar scoreboard as at 7.45am AEST.

  • AUD/USD 0.7532 , -0.0002 , -0.03%
  • AUD/JPY 77.2 , -0.06 , -0.08%
  • AUD/CNH 5.0263 , -0.0017 , -0.03%
  • AUD/EUR 0.6755 , 0.0003 , 0.04%
  • AUD/GBP 0.5669 , 0.0002 , 0.04%
  • AUD/NZD 1.0421 , 0.0005 , 0.05%

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