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7 Oct 2013
Flash: AUD net shorts could be unwound; 0.97 projected target - TDS
FXstreet.com (Barcelona) - The repetition by the RBA last week - 2nd time in a row -of a neutral stance may prompt specs ‘hot money’ to reassess its longstanding net short AUD position, notes Annette Beacher, FX Strategist at TDS.
Key Quotes
"Even the 12mth AUD OIS is starting to again re-price that the next move in the cash rate could be up."
"Another signal from the RBA that needs further clarification, is the lack of explanation as to the Board’s shift in stance in
assessing what is a “high level” of the AUD. The September Board communiqué said “The Australian dollar has depreciated by around 15% since early April, although it remains at a high level” but earlier this week, the RBA said “The Australian dollar rose recently, but is still about 10% below its level in April. A lower level of the currency than seen at present would assist in rebalancing growth in the economy”. Where is the reference to the AUD being at a high level?"
"If the RBA Board is now truly more tolerant of a higher AUD, then betting on the RBA easing or at the least talking it down could be the wrong choice. If the spec community reacts to ongoing neutral RBA Board communiqués, then these net short positions could be unwound. Using historical correlations, a net neutral position coincides with the AUD around $US0.97."
"None of these “conclusions” are our base case, as we are fundamentally bullish the USD for next year. However, we need to highlight the risk that a correction in the long-standing net short positions could generate a much stronger AUD in the coming months before eventually re-settling towards sub-$US90 in 2014."
Key Quotes
"Even the 12mth AUD OIS is starting to again re-price that the next move in the cash rate could be up."
"Another signal from the RBA that needs further clarification, is the lack of explanation as to the Board’s shift in stance in
assessing what is a “high level” of the AUD. The September Board communiqué said “The Australian dollar has depreciated by around 15% since early April, although it remains at a high level” but earlier this week, the RBA said “The Australian dollar rose recently, but is still about 10% below its level in April. A lower level of the currency than seen at present would assist in rebalancing growth in the economy”. Where is the reference to the AUD being at a high level?"
"If the RBA Board is now truly more tolerant of a higher AUD, then betting on the RBA easing or at the least talking it down could be the wrong choice. If the spec community reacts to ongoing neutral RBA Board communiqués, then these net short positions could be unwound. Using historical correlations, a net neutral position coincides with the AUD around $US0.97."
"None of these “conclusions” are our base case, as we are fundamentally bullish the USD for next year. However, we need to highlight the risk that a correction in the long-standing net short positions could generate a much stronger AUD in the coming months before eventually re-settling towards sub-$US90 in 2014."