30 Jul 2013
AUD/USD: A guideline to trap wrong-footed short specs
FXstreet.com (Barcelona) - There are three fundamental pillars directly associated to the penurious performance by the Australian Dollar since breaking a 1-year long range back in early May this year.
These unsupportive AUD factors are China's growth slowdown, the RBA loose policies and Fed taper talk; and much the demise of AUD long's hopes, as far as these three stories go, none appears to provide much cushion for the currency.
Current state of affairs in China, RBA, taper
The latest reports out of China suggest the country's top officials are starting to speculate on weaker growth from the current 7.5% printed in Q2. The RBA easing campaign is also seen as a big drag on the Aussie, with the latest reports implying growing pressure from the government to get the central bank's assistance to stimulate the economy. The Fed taper is what still appears to be the only data-dependent unresolved issue here, not so much about the 'if' though, but the 'when', despite the majority of large banks are expecting a $20 bn QE reduction starting in September, which would weigh on the AUD/USD. However, the reality is that even as the market has been 'pricing out' the 'Septaper', the AUD/USD has failed to break through the impregnable 0.93, thus suggesting that the Fed is perhaps, surprisingly, the element weighing the least out of the three on the AUD/USD value.
There is a glimpse of hope for the Aussie
In the grand scheme of things, the outlook for the Aussie is undeniably cloudy. However, as the say goes, "the grass is always greener on the other side of the fence", which if applied to the Aussie, means there are still some set of different circumstances by which, if they manifest, may lead to the exchange rate taking the overly short speculative AUD market on the wrong foot to potentially create what many Analysts see as a long-awaited short squeeze.
There will be some top-tier events this week which, if in favour of the Australian Dollar, may accomplish an initial short squeeze. The first one would be an upbeat China's official PMI on Thursday,a 'must follow' after the poor HSBC PMI. Secondly, a disappointing NFP this Friday would also hurt the U.S. Dollar as Fed taper timing gets pushed further down the road. However, the most pressing issue and where the opportunity to be an Aussie long for a potential break of the formidable 0.93/0.9320 lies is on a surprising RBA hold next week August 6th. At the moment, the overnight index swap market is pricing in a 79% chance of a 25 bp cut, a dangerous assumption by the market, which if backfires, may set in motion a snow ball trapping on the wrong side of the market the shorts community. If the cut comes, as expected by many, in this case, as noted by HSBC FX Team, well, one might get ready for a potential break of 0.90.
These unsupportive AUD factors are China's growth slowdown, the RBA loose policies and Fed taper talk; and much the demise of AUD long's hopes, as far as these three stories go, none appears to provide much cushion for the currency.
Current state of affairs in China, RBA, taper
The latest reports out of China suggest the country's top officials are starting to speculate on weaker growth from the current 7.5% printed in Q2. The RBA easing campaign is also seen as a big drag on the Aussie, with the latest reports implying growing pressure from the government to get the central bank's assistance to stimulate the economy. The Fed taper is what still appears to be the only data-dependent unresolved issue here, not so much about the 'if' though, but the 'when', despite the majority of large banks are expecting a $20 bn QE reduction starting in September, which would weigh on the AUD/USD. However, the reality is that even as the market has been 'pricing out' the 'Septaper', the AUD/USD has failed to break through the impregnable 0.93, thus suggesting that the Fed is perhaps, surprisingly, the element weighing the least out of the three on the AUD/USD value.
There is a glimpse of hope for the Aussie
In the grand scheme of things, the outlook for the Aussie is undeniably cloudy. However, as the say goes, "the grass is always greener on the other side of the fence", which if applied to the Aussie, means there are still some set of different circumstances by which, if they manifest, may lead to the exchange rate taking the overly short speculative AUD market on the wrong foot to potentially create what many Analysts see as a long-awaited short squeeze.
There will be some top-tier events this week which, if in favour of the Australian Dollar, may accomplish an initial short squeeze. The first one would be an upbeat China's official PMI on Thursday,a 'must follow' after the poor HSBC PMI. Secondly, a disappointing NFP this Friday would also hurt the U.S. Dollar as Fed taper timing gets pushed further down the road. However, the most pressing issue and where the opportunity to be an Aussie long for a potential break of the formidable 0.93/0.9320 lies is on a surprising RBA hold next week August 6th. At the moment, the overnight index swap market is pricing in a 79% chance of a 25 bp cut, a dangerous assumption by the market, which if backfires, may set in motion a snow ball trapping on the wrong side of the market the shorts community. If the cut comes, as expected by many, in this case, as noted by HSBC FX Team, well, one might get ready for a potential break of 0.90.