AUD/USD playing the bands

Relative calm continued to prevail in the FX space despite geopolitical risk remaining rampant.

AUD notes
Source: Bloomberg

I continue to watch AUD/USD quite closely as it maintains a tight range presumably waiting for a catalyst before the next move. AUD/USD remains subdued and relatively sidelined at 0.937. Glenn Stevens speaks at a luncheon this afternoon where analysts expect the Governor to pick up on some of the key themes that he’s touched on recently.

This includes the elevated AUD and some uncertainty about the extent to which a pick-up in non-mining activity will offset the decline in mining investment. We also have Assistant Governor Debelle participating in a panel discussion through the day. This is unlikely to carry as much weight as Stevens’ speech particularly heading into tomorrow’s CPI data.

Risk also focuses on Indonesia elections

Additionally the announcement of the Indonesian election results could be a source of volatility for risk should they not go as planned. The market expects the results to confirm Jokowi as Indonesia’s next president after securing 52.9% of votes. The baseline scenario is for a smooth transition but there has been loose talk of protests from the opposition should Jokowi be confirmed. Should this not come to fruition then perhaps some profit taking in the short term will be on the cards. Having said that, the Bollinger bands on AUD/USD remain intact and could continue to be used as a way of playing the pair.

The buy zone currently comes in at 0.9326 while the sell zone is at 0.9448. Should the pair trade at those levels, then I will assess stop levels depending on conditions and potential near term targets. When using this strategy, it’s always important to keep stops relatively tight given the trade is only valid if the bands continue to hold.

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