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Aussie dollar looking strong

I’ve been talking fairly positively about the AUD recently; taking profits on long AUD/NZD this week at 1.0700 and calling for a longer-term move in GBP/AUD to the downside.

My initial target on AUD/CAD has also been reached, although I’ve moved to a more neutral stance for now on this pair.

The AUD looks constructive against the USD too and as always this is the pair that is getting the lion’s share of attention in the market. AUD/USD has now closed above a confluence of key resistance levels and while the head and shoulders pattern on the daily chart would target the 0.9500 level, I would look first at the 61.8% retracement of the October to January falls at 0.9340. Naturally there will be profit-taking along the way, but this is where this move could feasibly reach.

Fundamentally there is a bullish and bearish case for price action over the short, medium and longer-term. For the pair to really head lower we need much more pronounced policy divergence to materialise between the Fed and RBA. Glenn Stevens spoke yesterday and clearly laid out that the case for additional easing from the RBA is high, and even threw in that there are promising signs in the economy.

The doves will still point to tighter financial conditions over the coming months (namely from the upcoming budget), backed by falling terms of trade and thus monetary policy will need to be more loose to offset this. On the other hand the hawks will point to the strength in housing and recent improvement in the labour market, among other factors.

The swaps market still feels the Fed will be slightly more aggressive with putting up rates, however naturally we need to see the Fed actually stop its data-dependant bond-purchase program first. Only then will they move to a neutral setting, and as we know; the RBA are already there. Stay long while price action continues to look constructive.

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