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Palu hurt his shoulder in the Waratahs's loss to the Brumbies last weekend and while no fracture or major soft tissue damage was found, he has not recovered in time for the game this weekend.
His loss will be felt by the Waratahs, who will go into the game on an unprecedented seven-game losing streak.
To cover the change Dave Dennis has been moved to No 8, Sitaleki Timani will start in the second row with Kane Douglas and Dean Mumm - the Waratahs's lineout caller - will move to blindside flank.
Prop Sekope Kepu has also been ruled out with the calf injury that kept him out of the Brumbies game. Paddy Ryan, who started at tighthead last week, will do the same against the Reds.
The Waratahs coaching staff were impressed with Ryan's performance, coming in as he did to an all-Wallabies front row that had had plenty of time on the field together.
"Paddy's performance against the Brumbies was most pleasing for someone coming back from an extended injury and having played only two club games," coach Michael Foley said.
“He is a young players who was progressing particularly well before injury and it's excellent to see him pick up where he left off."
The backs have been left intact, with halfback Grayson Hart and flyhalf Bernard Foley given another opportunity to improve their connection in the halves.
Teams:
Reds:
TBA
Waratahs: 15 Adam Ashley-Cooper, 14 Lachie Turner, 13 Rob
Horne, 12 Berrick Barnes, 11 Drew Mitchell, 10 Bernard Foley, 9 Grayson Hart, 8 Dave Dennis, 7 Chris Alcock, 6 Dean Mumm, 5 Kane
Douglas, 4 Sitaleki Timani, 3 Paddy Ryan, 2 Tatafu Polota-Nau, 1 Benn Robinson (captain)
Reserves: 16 John Ulugia, 17 Jeremy Tilse, 18 Lopeti Timani, 19 Jono Jenkins, 20 Brendan McKibbin, 21 Tom Carter, 22 Tom Kingston
