29 Oct 2013
AUD/USD down on Stevens comment
FXstreet.com (London) - AUD/USD has extended its losses but has found support while RSI reads below 30.
Kit Juckes, Gobal Head of Currency Strategy explained that the overnight mover is the Australian dollar 0.9% lower after RBA Governor Glenn Stevens is quoted as saying “It seems quite likely that at some point in the future the A$ will be materially lower than it is today”. “I don't disagree with the Governor and can easily imagine AUD/USD at 0.80 in a couple of years' time. But I don't think, sadly, that there will be much follow-through from today's move and I still want to sell AUD/USD much closer to parity, much closer to the end of the year. I was however, prompted to throw out another silly little baby model, for AUD/USD. Baby models have a maximum of two factors and this one uses copper futures prices and the 5yr Australian/US rate spread. For something so simple it's not that bad, and at least is a useful way of thinking about the AUD. If I look at SG long-term forecasts, copper prices are expected to trough in 2016 around $6000/MT, a fall of 14% from here. That would take fair value for AUD/USD down by about 9%. The economics team forecasts Fed Funds moving above the RBA's cash rate in 2017, and if the 5yr rate spread narrows to 50bp by the end of 2016, that would drag AUD/USD fair value around 17% lower from today's level. Again, with huge caveats attached, that makes a 25% fall in the AUD/USD rate by the end of 2016 plausible. So, if the US tightens as expected and the Chinese economic correction continues to drag down commodity prices AUD will fall. Since mid-July however, commodity prices have bounced and a fall back in US rates has seen the spread re-widen in the AUD's favour (it's very directional with US rates, see chart). Hence my frustration and desire to be patient. Here's hoping Mr Stevens will stop the verbal intervention!”
AUD/USD Levels
The 20 DMA is 0.9523, the 50 DMA is 0.9329 and the 200 DMA is 0.9734. RSI (14) reads 26.62. Supports are ascending from 0.9410 and 0.9469. Spot is currently 0.9478 while resistances are 0.9515, 0.9585, 0.9634 and 0.9671.
Kit Juckes, Gobal Head of Currency Strategy explained that the overnight mover is the Australian dollar 0.9% lower after RBA Governor Glenn Stevens is quoted as saying “It seems quite likely that at some point in the future the A$ will be materially lower than it is today”. “I don't disagree with the Governor and can easily imagine AUD/USD at 0.80 in a couple of years' time. But I don't think, sadly, that there will be much follow-through from today's move and I still want to sell AUD/USD much closer to parity, much closer to the end of the year. I was however, prompted to throw out another silly little baby model, for AUD/USD. Baby models have a maximum of two factors and this one uses copper futures prices and the 5yr Australian/US rate spread. For something so simple it's not that bad, and at least is a useful way of thinking about the AUD. If I look at SG long-term forecasts, copper prices are expected to trough in 2016 around $6000/MT, a fall of 14% from here. That would take fair value for AUD/USD down by about 9%. The economics team forecasts Fed Funds moving above the RBA's cash rate in 2017, and if the 5yr rate spread narrows to 50bp by the end of 2016, that would drag AUD/USD fair value around 17% lower from today's level. Again, with huge caveats attached, that makes a 25% fall in the AUD/USD rate by the end of 2016 plausible. So, if the US tightens as expected and the Chinese economic correction continues to drag down commodity prices AUD will fall. Since mid-July however, commodity prices have bounced and a fall back in US rates has seen the spread re-widen in the AUD's favour (it's very directional with US rates, see chart). Hence my frustration and desire to be patient. Here's hoping Mr Stevens will stop the verbal intervention!”
AUD/USD Levels
The 20 DMA is 0.9523, the 50 DMA is 0.9329 and the 200 DMA is 0.9734. RSI (14) reads 26.62. Supports are ascending from 0.9410 and 0.9469. Spot is currently 0.9478 while resistances are 0.9515, 0.9585, 0.9634 and 0.9671.