Australia's overinflated dollar could tumble
Oct 4 (Reuters) -China stimulus and great expectations for the U.S. easing cycle may have overinflated Australia's dollar, which could fall far on the back of the economic slowdown that China's spending is intended to prevent.
The AUD/USD surge from 0.6349 on Aug. 5 to 0.6943 on Sept. 30 forced traders from their short positions for the second time this year. Without their restraint, the drop following a strong U.S. jobs report could extend far.
Strong jobs data that will make it harder for the U.S. central bank to match a very extreme outlook for the easing cycle follows hot on the heels of an $8/bbl surge in oil prices that will trouble every central bank that hopes to lower interest rates.
If interest rates do not come down as much as hoped then equities, which have rocketed higher, may well give back some of their big gains.
Australia's dollar, which is highly correlated with risk appetite, could come under big pressure and, with very few shorts to restrain a drop, the currency could fall far and fast.
Overbought ahead of this drop, AUD/USD has plenty of scope to fall, with the base of the 20-week Bollinger bands currently 0.6492, while the target for a minor correction is at 0.6716.
For more click on FXBUZ
AUDUSD https://tmsnrt.rs/4euWR5c
(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)
</body></html>Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
