Forex News – Reserve Bank of Australia expected to cut rates as AUD makes huge monthly gains

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The Australian dollar had a stunning performance this month, reversing direction from a lacklustre September, and is on track for the biggest monthly gains in over two years.

However, the aussie’s outperformance is not expected to continue next week as the focus turns to the Reserve Bank of Australia’s decision on interest rates. Speculation is that the RBA will cut its base rate by 25 basis points to bring the current rate down to 4.5 percent. The move higher in AUDUSD (and therefore AUDCNY) over the past week may serve to encourage a RBA rate cut.

The risk-on sentiment following the euphoria after the EU Summit successfully concluded with a debt deal, the Australian dollar soared against the US dollar, gaining as much as 3.5 percent in the past two days alone.

In the past week, the AUD gained 2.3% against CAD and 1.3% against NZD.

The commodity-linked currency was on course for its biggest monthly jump at 10.4 percent, the largest since May 2009.

However, the AUDUSD pair eased off highs today as the euphoria from the summit fizzles out and trading volume was light ahead of the weekend.

“The market is still 70 percent priced for a 25 bps cut from the RBA in November. After the (Aussie) move we’ve had, we’d need to see a ‘no move’ to propel gains further,” said David Scutt, trader at Arab Bank Australia.

“If we get a sign that they’re looking to a series of cuts then the Aussie’s lofty run will end and it will look like a slippery slope back towards parity,” he added.