21 Mar 2014
Resilient AUD despite negative inputs
FXStreet (Bali) - If there is one currency holding extraordinarily well the stampede of USD positive flows since Yellen's hawkish bombshell on Wednesday, that is the Aussie, closing flat for the day at 0.9040.
While initially pushed towards lower ground, 0.90 proved to be a formidable support, holding both attempts to break below in Asia and early US. The sharp slide in EUR/USD, clearance off 6.20 in USD/CNY and even the collapse in copper prices (down 2.3% at one point) were not enough to bring the price further down, with talk of real money notable dip buyers.
The fact that the RBA continues to hold a firm neutral stance in rates, with the latest domestic indicators suggesting the bar to cut again may have been set too high, is one of the main reasons causing a shift back into AUD holdings.
There is no question that the RBA could still maintain the current outlook on policy rates for a prolonged period of time, however, the fact that there is no much room for them to cut further, is slowly weighing upon a growing perception that sooner or later, rate hikes should be seen next year; that expectation alone suggests the AUD is well positioned vs G10 currencies, especially the CAD, EUR, JPY, where dovishness from CBs is still dominant.
The risk for the AUD/USD is that, should the Fed step up rhetoric on rate hikes next year, further slides in AUD/USD could be seen as a result, however, it looks like the past days of AUD slaughtering seen back in 2013 are behind us, unless a sudden unexpected monetary change by the RBA, which may include either more aggressive talk down of the AUD or cut hints.
While initially pushed towards lower ground, 0.90 proved to be a formidable support, holding both attempts to break below in Asia and early US. The sharp slide in EUR/USD, clearance off 6.20 in USD/CNY and even the collapse in copper prices (down 2.3% at one point) were not enough to bring the price further down, with talk of real money notable dip buyers.
The fact that the RBA continues to hold a firm neutral stance in rates, with the latest domestic indicators suggesting the bar to cut again may have been set too high, is one of the main reasons causing a shift back into AUD holdings.
There is no question that the RBA could still maintain the current outlook on policy rates for a prolonged period of time, however, the fact that there is no much room for them to cut further, is slowly weighing upon a growing perception that sooner or later, rate hikes should be seen next year; that expectation alone suggests the AUD is well positioned vs G10 currencies, especially the CAD, EUR, JPY, where dovishness from CBs is still dominant.
The risk for the AUD/USD is that, should the Fed step up rhetoric on rate hikes next year, further slides in AUD/USD could be seen as a result, however, it looks like the past days of AUD slaughtering seen back in 2013 are behind us, unless a sudden unexpected monetary change by the RBA, which may include either more aggressive talk down of the AUD or cut hints.