AUD - Preview: RBA Minutes A Reminder of Dovish Central Bank

The Australian dollar has had an eventful month as it was sold off sharply among concerns about China at the start of March and extending through April. However a very strong employment report last week helped stabilize the Aussie and helped it to push above an important resistance trendline in the AUD/USD pair.

The question then is does the employment data materially change the fundamental outlook for Australia as data has been generally weaker prior to the surprise gain of 44K jobs in March. Despite the employment data, there is a growing chorus for more rate cuts.

From Sydney Morning Herald: "Ms Ong noted ANZ's decision came as various business leaders, union officials, the government and opposition have been particularly vocal on the need for the RBA to cut rates.

Former federal opposition leader John Hewson became the latest to launch a scathing attack on the central bank for failing to concede that the non-resource sectors - particularly retail, property and construction, and manufacturing - are "teetering on the brink of recession"."

The previous macro data had prompted a more dovish RBA in its latest rate decision with the central bank signaling that it sees weaker growth than expected and may loosen monetary policy - provided that inflation remains contained.

In the upcoming Asian trading session the RBA releases its meeting minutes giving us further insight into why the the bank believes growth has undershot expectations and what would be needed to bring about a reduction in rates.

From RBA Statement: "The Board eased monetary policy late in 2011. Since then, its judgement has been that, with growth expected to be close to trend, inflation close to target and lending rates close to average, the setting of monetary policy was appropriate. The Board's view was also that, were demand conditions to weaken materially, the inflation outlook would provide scope for easier monetary policy. At today's meeting, the Board judged the pace of output growth to be somewhat lower than earlier estimated, but also thought it prudent to see forthcoming key data on prices to reassess its outlook for inflation, before considering a further step to ease monetary policy."

The focus on inflation data will mean the 1Q release of CPI data - set for April 24th - will be very closely anticipated, especially if it is met with other softer macro data - like the weaker readings in consumer confidence and new home loans - that we saw last week.

Will a reminder of the dovish case by the RBA impact and weaken the Australian dollar in the upcoming trading session, especially coming off a weaker GDP reading from China? There are also concerns around Europe which could dent general risk sentiment and equities which would also be negative for the Australian dollar.

My best rational guess is yes, that the Minutes and current sentiment conditions in the market should continue to favor a bearish bias in the AUD.

Positioning data suggests that the "smart money" continues to cut net long positions in Australia Dollars as total net longs held by "large speculators" fell from 49.3K to 39.4K. Small traders also cut their long positions. That should indicate to us that both expect the AUD to continue its recent decent.