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4 Apr 2014
AUD/USD rally to falter, return to 0.87/0.88 eyed - TDS
FXStreet (Bali) - While the market’s mood towards the Australian Dollar has been in a positive transition in recent months, Annette Beacher and Prash Newnaha, FX Strategists at TD Securities, do not forecast a significant AUD rally from current levels.
Key Quotes
"Mirroring this lower for longer mantra, investor expectations for the RBA to hike are the most subdued compared to the periods preceding the ’02 and ’09 RBA hikes. Should an acceleration in economic activity materialise as we anticipate, market participants can be expected to bring forward rate hike expectations."
"We are not there yet, but the market’s mood is changing. The spread between the 4th Australian bank bill futures contract and the 4th Eurodollar contract—looking at 3m bills a year out from now— has been widening, driving the rally in the AUD. This rally also coincided with CFTC data showing the speculative community continues to cut USD longs from excessive levels, explaining why the USD has not rallied despite Fed Chair Yellen surprising the market by suggesting rates could be hiked as soon as June next year."
"Our forecasts for the RBA to hike this year and much earlier than the Fed argues for a stronger AUD. However with Chinese officials attempting to manage the transition from net exports to consumption, adding a layer of uncertainty for the RBA, and against a backdrop of accelerating US growth, we do not forecast a significant AUD rally from current levels. But nor are we forecasting the AUD to drop sharply lower. Rather, we expect the AUD to be closer to USD0.87/88 over the second half of the year. We will be closely monitoring CFTC data when USD longs build and when bill futures spread begin narrowing."
Key Quotes
"Mirroring this lower for longer mantra, investor expectations for the RBA to hike are the most subdued compared to the periods preceding the ’02 and ’09 RBA hikes. Should an acceleration in economic activity materialise as we anticipate, market participants can be expected to bring forward rate hike expectations."
"We are not there yet, but the market’s mood is changing. The spread between the 4th Australian bank bill futures contract and the 4th Eurodollar contract—looking at 3m bills a year out from now— has been widening, driving the rally in the AUD. This rally also coincided with CFTC data showing the speculative community continues to cut USD longs from excessive levels, explaining why the USD has not rallied despite Fed Chair Yellen surprising the market by suggesting rates could be hiked as soon as June next year."
"Our forecasts for the RBA to hike this year and much earlier than the Fed argues for a stronger AUD. However with Chinese officials attempting to manage the transition from net exports to consumption, adding a layer of uncertainty for the RBA, and against a backdrop of accelerating US growth, we do not forecast a significant AUD rally from current levels. But nor are we forecasting the AUD to drop sharply lower. Rather, we expect the AUD to be closer to USD0.87/88 over the second half of the year. We will be closely monitoring CFTC data when USD longs build and when bill futures spread begin narrowing."