Day two: our AUD/USD trade

I suggested looking at long AUD/USD trades at 0.9100, with a stop loss at 0.9040, for a potential move to 0.9220.

Given the strong US ISM numbers we have seen AUD/USD fall to my suggested limit and thus I am hoping for the AUD to stage somewhat of a rebound. The event risk from here really does ramp up though and there is a good chance that the pair heads close to my stop or limit today, given what’s on the agenda over the coming hours.

Traders will always look out at the current account balance, as it has big implications for tomorrow’s Q3 GDP print (expected to be +0.7%), while the October retail sales (anticipated to grow 0.4%) will be closely followed given the move from mining led growth to higher domestic demand.

The RBA statement at 14:30 should not materially change, but for me it’s whether the bank removes the line about the AUD being ‘uncomfortably high’, and simply leaves in the statement that ‘a lower level of the exchange rate is likely to be needed to achieve balanced growth in the economy’. The AUD has fallen around 3% on a trade-weighted basis and 4% against the greenback since the last meeting; the RBA will need to assess whether that is a big enough fall to warrant a change in this statement.

My personal belief is that the RBA should take advantage of the momentum in the AUD and keep its current non-urgent easing bias in place, and given Glenn Stevens’ recent speech that the AUD is still overvalued, this is probably likely to happen. However if there is a change then the AUD will clearly rally and from a risk/reward perceptive being long AUD makes sense.

The market is positioned for further negative rhetoric; however it’s interesting to see that the swaps market is pricing ten basis points of hikes over the coming twelve months. Of course there are other factors in play for the AUD other than just interest rate cuts, but right now there are mild distortions appearing in the markets.


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