This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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.