AUD/USD has posted an impressive recovery from the 0.7706 Asian session low. Broad dollar losses coupled with an improvement in the JPY crosses has seen out-performance, with the pair extending to a 0.7770 high. However, there are fundamental reasons why AUD/USD may not be able to continue in this vein.
Yesterday's dovish RBA statement could mark an end to the aggressive hedge fund/investment flows into Aussie. Some weak spots have started to appear in thedomestic economy, with the real estate market showing signs of a slowdown coupled with a softening in commodity prices. This comes after a benign inflation release and is supported by a weakening price outlook. In this environment rates are expected to remain on hold for the foreseeable future. AUD/USD's propensity to trade as a barometer for global growth could also work against the pair, along with the domestic economic issues already highlighted.
Something to be expected is the reduced carry trade interest and macro positioning to add downside pressure over the next month and see potential for a move into the low 0.76's. Using a One Touch strategy, we might get more than two times your return on a 0.7630 target. Using FENICS FX 2002, a 1-mth 0.7630 One Touch comes in at 42.14%.
Vols at 7.60% are used, which included 0.75% premium for AUD puts and forward rates of 5.70/5.50 and a spot rate of 0.7762. Here is something to look at is that 0.7630 is a viable target, although it is noted that prices will need to clear key support a 0.7700 to reinforce this developing trend.
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