Current Positions:

- Short AUDUSD (1/2) at net 0.9192, Stop at 0.9170, Target 1 at 0.9045, Target 2 at 0.8960, Target 3 at 0.8770, Target 4 at 0.8545

Closed Positions:

- Short AUDUSD (1/) from net 0.9192 at 0.8960 for +232-pips; full-size position gain of +116-pips

Typical Time Frame: 1-day to 1-week

The expected AUDUSD rally never materialized after FOMC and the initial excitement seen in the pair after the disappointing July NFP report has already been retraced in its entirety. What does this tell me?

- USD demand remains high despite slower than desired labor progress

- traders continue to spurn the AUD in favor of fundamentally strong currencies

- the expected RBA rate cut on Tuesday continues to be the biggest driver of AUD sentiment

If anything, the NFP report may put focus on a weaker USDJPY and if so, AUDJPY shorts are favored to AUDUSD. In either case, commentary from RBA Governor Stevens on Tuesday was revealing. He noted that the inflation outlook remains dampened substantially, and isn't at risk for overheating "short of a very, very large depreciation, which of course we haven't yet seen."

Translation: the ~15% decline since mid-April doesn't even qualify as a "very, very large depreciation," and the Australian Dollar could decline much further before it becomes a concern. 'Don't fight the Fed' applies here: don't fight the RBA.

Are you new to FX or curious about your trading IQ?

As always, any other trade ideas and general macroeconomic musings can be found in the DailyFX Real Time News feed, or by following me on Stocktwits/Twitter @CVecchioFX.

I also host a weekly Live Trading Q&A in DailyFX Plus, on Tuesdays at 06:00 EDT / 10:00 GMT, in which I delve deeper into my positions and thought processes behind my analyses.

--- Written by Christopher Vecchio, Currency Analyst

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