18 Feb 2015
AUD/USD kisses 0.7830 after marginal breakout
FXStreet (Bali) - AUD/USD edged higher in late Asia, peaking at 0.7830 followed by a retreat towards 0.7818, as sellers continue to protect the topside, with the market still expecting further RBA cuts this year.
An increase in AUD flows, via Japanese interest in Australian bonds, and anticipation of M&A activity in AUD after Japan Post sealed a deal with Australian-based Toll Holdings, has been attributed as a contributing factor to the pair's recovery. If one throws into the mix the poor performance by the US Dollar across the board since last week's US retail sales/jobs claims miss, it has allowed the AUD/USD to come into contact with an important resistance at 0.7830/50. FOMC minutes later today will be the next big mover.
On AUD flows originated from Japan, Nomura notes: "We believe Japanese institutional investors, including lifers, will continue to invest in Australian bonds. Of course, with global interest rates on a downtrend and the RBA cutting interest rates, Australian interest rates are also declining and in our view are not attractive enough to prompt Japanese institutional investors to purchase aggressively. However, yields of just over 2% on 10-year bonds are comparatively high and the RBA’s efforts to promote AUD depreciation are also making AUD-denominated bonds more attractive to Japanese investors given a more favourable level of AUD/JPY. We believe 95 for AUD/JPY was an initial target level for Japanese investors and the cross has now moved below this level. As investors target yield, Australian bonds without FX hedges are emerging as a possible strategy."
An increase in AUD flows, via Japanese interest in Australian bonds, and anticipation of M&A activity in AUD after Japan Post sealed a deal with Australian-based Toll Holdings, has been attributed as a contributing factor to the pair's recovery. If one throws into the mix the poor performance by the US Dollar across the board since last week's US retail sales/jobs claims miss, it has allowed the AUD/USD to come into contact with an important resistance at 0.7830/50. FOMC minutes later today will be the next big mover.
On AUD flows originated from Japan, Nomura notes: "We believe Japanese institutional investors, including lifers, will continue to invest in Australian bonds. Of course, with global interest rates on a downtrend and the RBA cutting interest rates, Australian interest rates are also declining and in our view are not attractive enough to prompt Japanese institutional investors to purchase aggressively. However, yields of just over 2% on 10-year bonds are comparatively high and the RBA’s efforts to promote AUD depreciation are also making AUD-denominated bonds more attractive to Japanese investors given a more favourable level of AUD/JPY. We believe 95 for AUD/JPY was an initial target level for Japanese investors and the cross has now moved below this level. As investors target yield, Australian bonds without FX hedges are emerging as a possible strategy."