We take a look at the current strength of AUD/USD, plus the descent of AUD/NZD and where these pairs may be headed.
The strength of AUD/USD
- Despite most economists calling for slower global growth, and the World Bank cutting its projections from 3.6% to 2.5% on January 18, the AUD/USD remains a pillar of strength, gaining nearly 2%, only bettered by the less liquid NZD.
- The strength has dumbfounded many who had been predicting a move down to 90 cents by year-end, given it is still considered the proxy of global growth and risk appetite.
- The technicals paint a picture of strength, with the pair making a series of higher highs and lows in recent times, and it has been in a strong bullish channel since January 19.
- AUD/USD has now reached an inflection point where the 200-day moving average, the 61.8% retracement of the sell-off from 1.1080 to 0.9389 and July 27 downtrend resistance converge. A closing break above 1.0460 (July 27 downtrend) would be a positive development, and a move to 1.06 would be the first target.
- Against a slowing global growth backdrop, the inflows into antipideon currencies are interesting. Obviously the expected loosening of monetary policy in China is aiding sentiment, while Chinese GDP is certainly not suggesting a hard landing any time soon.
- Domestic interest rates are likely to come down throughout the year, however with the Australian ten-year bond providing a yield of 3.67%, it is still a very attractive place to be relative to other developed nations, hence the inflows into the AUD. Australia is also one of 13 AAA rated nations globally, and has a reasonably liquid bond market as well, again increasing the Aussie's attractiveness.
- We are keeping a close eye on the Greek debt swap agreement, which we are likely to hear more about in the next few days. Any signs of an agreement, thus avoiding a hard default of Greek debt, could help AUD/USD towards the 1.0460 level. On the contrary, if there are clear signs that no agreement will be reached and a default is likely, look for AUD/USD to potentially test support around 1.03.
AUD/NZD – Looking for a move lower
- We feel AUD/NZD is worth looking at as an interesting short. Having broken out of its trading range in early November (below the 23.6% retracement of the September/November rally and November 14 and December 19 low around 1.3055), the pair went on to test the break on January 13, only to reject this level - a powerful sign.
- We are looking for a move over time down to the 50% retracement of the September/November rally of 1.2821. The nice thing about this pair is it does not move on risk on/risk off, and is more technically focused.
- We feel being short AUD/NZD with a stop loss just above 1.3063 could potentially be a profitable trade over the next few weeks.
Have a view on currency pairs?
If you have a view on the current moves of AUD/USD or AUD/NZD, why not back your opinion with forex CFDs. We have over 60 currency pairs on offer, with tight trading spreads beginning at just 0.8 pips.
You can also take advantage of our expert forex commentary, Forex Focus, updated twice daily to keep you in the know.
IG Markets not only provides forex CFDs; visit our range of markets to view our huge offering.
If you are not already IG Markets clients, apply online and you could be trading within minutes.
Updated: 19/01/2012
Disclaimer: IG Markets provides an execution-only service. The material above does not contain (and should not be construed as containing) personal financial or investment advice or other recommendations, or an offer of, or solicitation for, a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of the above information. Consequently any person acting on it does so entirely at his or her own risk. The research does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. IG Markets accepts no responsibility for any use that may be made of these comments and for any consequences that result.
SHARE: