14 Apr 2014
AUD/USD: Potential for further upside - Westpac
FXStreet (Bali) - Westpac's FX Team notes that according to their probability model, there is still more upside in AUD/USD.
Key Quotes
"Back on March 26, we argued that AUD was likely to grind higher and we were targeting a move to 0.9330/40 region. In the event, the A$ met and significantly beat that target. As we highlight below, the stars are still aligned for further short term strength in the A$. Yield momentum is rising; our probability model suggests there is still more upside; our fair value models for the A$ are rising; our growth signal for the Australian economy is rising; commodity prices have stabilised and risen in recent weeks and Asian equity market signals have strengthened. All of these factors explain in part the recent strength in the A$, and the potential that there is still further upside."
"Clearly, another critical part of this recent move higher has been the recent slump in the greenback. All G10 currencies are up against the US$ over the past week or so. Looking into next week, consensus expectations are uniformly slanted toward firmer data across the calendar. The complexion of the data may indeed look firmer vs recent weather-depressed updates but the wiggle room for positive surprises appears to be very small. So the risks seem to be that we see further strength in the A$."
"However, there are signs that we have written in a lot of the 'good news' already. Technically, the A$ is overdue a correction. CFTC positioning suggests the 'spec' market is on the cusp of running net long positions. Much beyond the 0.9480/0.9500 level there doesn't seem to be an awful lot of upside here. But at least for the moment, we do not have a clear signal in the suite below that the current grind is about to reverse. The A$ looks like it could spend some time in the 0.9300/ 0.9500 region in the sessions ahead."
Key Quotes
"Back on March 26, we argued that AUD was likely to grind higher and we were targeting a move to 0.9330/40 region. In the event, the A$ met and significantly beat that target. As we highlight below, the stars are still aligned for further short term strength in the A$. Yield momentum is rising; our probability model suggests there is still more upside; our fair value models for the A$ are rising; our growth signal for the Australian economy is rising; commodity prices have stabilised and risen in recent weeks and Asian equity market signals have strengthened. All of these factors explain in part the recent strength in the A$, and the potential that there is still further upside."
"Clearly, another critical part of this recent move higher has been the recent slump in the greenback. All G10 currencies are up against the US$ over the past week or so. Looking into next week, consensus expectations are uniformly slanted toward firmer data across the calendar. The complexion of the data may indeed look firmer vs recent weather-depressed updates but the wiggle room for positive surprises appears to be very small. So the risks seem to be that we see further strength in the A$."
"However, there are signs that we have written in a lot of the 'good news' already. Technically, the A$ is overdue a correction. CFTC positioning suggests the 'spec' market is on the cusp of running net long positions. Much beyond the 0.9480/0.9500 level there doesn't seem to be an awful lot of upside here. But at least for the moment, we do not have a clear signal in the suite below that the current grind is about to reverse. The A$ looks like it could spend some time in the 0.9300/ 0.9500 region in the sessions ahead."