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4 Oct 2013
AUD/USD, why there is a case to buy dips?
FXstreet.com (Barcelona) - A few weeks ago, most technical analysts were closely monitoring the 0.9330/50 resistance in the AUD/USD as a 'make or break' area for the Aussie, one in which a violation would mean the chance to develop a more constructive tone near term.
Where we come from and where we are
The fact that such break came 'fast and furious' on Sept 17 post Fed 'non-taper' shocker, with the pair blowing stops all the way up to 0.95+, raised some eyebrows as to what lies ahead for the AUD/USD in a world where 0.9330/50 is now left behind.
The slide off 0.95 on Sep 19 down to retest not only 0.9330/50 but a 2-week low at 0.9280 end of Sept - corp demand reportedly very strong there - turned some market commentators again pretty bearish, saying that a break and hold below that number would put at risk the short term bullish context. However, up until now, the crossing of the 20-day EMA at the precise same level has seen bids emerge, resulting on the pair re-challenging a level of resistance near 0.9450.
At the same time, as the AUD/USD has been well protected above 0.9280/20-day EMA intersection, the RBA has kept its neutral tone on monetary policies, which only strengthens the notion of 'being comfortable' to keep rates at 2.5% record lows, as it fails to really see any compelling cause to bring them lower, even if highlighting that the AUD remains expensive.
RBA from 'neutral' to 'hawkish'?
In an insightful report published yesterday at FXstreet.com, Greg Gibbs, FX Trading Strategist at RBS, notes "in Australia house prices are rising more sharply, confidence surveys are improved, the global PMI is at a 27 month high, the Fed has backed off the taper and the new Australian government is swinging from fiscal conservative in opposition to infrastructure builders in government." In view of Gibbs, all these factors combined suggest "to an RBA firmly on hold and the next move in rates, albeit months away, may be up not down.
Bill Gross on its latest 'investment outlook' letter to clients, referring to the Fed
"What matters most for bond and other investors though is not timing of the taper nor the endpoint of QE, but the policy rate: 1) how long it stays where it is, 2) what is the long-term neutral rate in a highly levered economy and 3) can a chastened central bank convince investors that it knows the answer and can be trusted to stick to it?"
"It’s the policy rate, both spot and forward, that prices markets and drives economies and investment decisions. QEs were simply a necessary medicine for rather uncertain and illiquid times. Now that more certainty and more liquidity have been restored, it’s time for the policy rate and forward guidance to assume control."
AUD/USD dip buyers on the rise
The above view from Mr. Gross illustrates perfectly how markets function and what they tend to take into account to increase/decrease the value of an asset, barring any black swan event, in which case, all hell tends to break loose, and 'rate expectations-driven moves' are replaced by a day-by-day sentiment basis.
In the AUD/USD case, from a fundamental stance, the pair is nicely supported by a much less dovish RBA - with reasons accumulating to remain so in the short to medium term - , coupled with Fed taper timing/debt ceiling issues unresolved and sigs of recovery in China, it suggests that the bearish calls in the Aussie should be taken with a grain of salt, or at least, if indeed the slides occur, be aware there is an emergency bull market buying the currency on dips defending the case exposed here.
Where we come from and where we are
The fact that such break came 'fast and furious' on Sept 17 post Fed 'non-taper' shocker, with the pair blowing stops all the way up to 0.95+, raised some eyebrows as to what lies ahead for the AUD/USD in a world where 0.9330/50 is now left behind.
The slide off 0.95 on Sep 19 down to retest not only 0.9330/50 but a 2-week low at 0.9280 end of Sept - corp demand reportedly very strong there - turned some market commentators again pretty bearish, saying that a break and hold below that number would put at risk the short term bullish context. However, up until now, the crossing of the 20-day EMA at the precise same level has seen bids emerge, resulting on the pair re-challenging a level of resistance near 0.9450.
At the same time, as the AUD/USD has been well protected above 0.9280/20-day EMA intersection, the RBA has kept its neutral tone on monetary policies, which only strengthens the notion of 'being comfortable' to keep rates at 2.5% record lows, as it fails to really see any compelling cause to bring them lower, even if highlighting that the AUD remains expensive.
RBA from 'neutral' to 'hawkish'?
In an insightful report published yesterday at FXstreet.com, Greg Gibbs, FX Trading Strategist at RBS, notes "in Australia house prices are rising more sharply, confidence surveys are improved, the global PMI is at a 27 month high, the Fed has backed off the taper and the new Australian government is swinging from fiscal conservative in opposition to infrastructure builders in government." In view of Gibbs, all these factors combined suggest "to an RBA firmly on hold and the next move in rates, albeit months away, may be up not down.
Bill Gross on its latest 'investment outlook' letter to clients, referring to the Fed
"What matters most for bond and other investors though is not timing of the taper nor the endpoint of QE, but the policy rate: 1) how long it stays where it is, 2) what is the long-term neutral rate in a highly levered economy and 3) can a chastened central bank convince investors that it knows the answer and can be trusted to stick to it?"
"It’s the policy rate, both spot and forward, that prices markets and drives economies and investment decisions. QEs were simply a necessary medicine for rather uncertain and illiquid times. Now that more certainty and more liquidity have been restored, it’s time for the policy rate and forward guidance to assume control."
AUD/USD dip buyers on the rise
The above view from Mr. Gross illustrates perfectly how markets function and what they tend to take into account to increase/decrease the value of an asset, barring any black swan event, in which case, all hell tends to break loose, and 'rate expectations-driven moves' are replaced by a day-by-day sentiment basis.
In the AUD/USD case, from a fundamental stance, the pair is nicely supported by a much less dovish RBA - with reasons accumulating to remain so in the short to medium term - , coupled with Fed taper timing/debt ceiling issues unresolved and sigs of recovery in China, it suggests that the bearish calls in the Aussie should be taken with a grain of salt, or at least, if indeed the slides occur, be aware there is an emergency bull market buying the currency on dips defending the case exposed here.