IG Markets Forex thoughts

IG Markets Forex thoughts

AUDUSD

AUD/USD remains choppy going into the key Jackson Hole meeting with the pair overnight, trading up to 1.0513, before a sell-off in equities saw risk appetite diminish, and subsequently the pair fell to 1.0419. The key focus in Asia was RBA governor Glenn Stevens who spoke at 9:30 (Melbourne time) on the domestic economy, with the end result being good buying in AUD/USD to 1.0505, with gains against the G10 complex. Mr Stevens’ speech seemed fairly neutral, and whilst he made it clear that conditions domestically have changed suggesting weaker consumer confidence will translate into weaker demand, he said underlying inflation pressures remain. A bullish assessment of the Chinese economy also helped boost the Aussie, and whilst he highlighted that there are major challenges in the world economy, he tried to reassure investors that Australian banks’ exposure to Europe is ‘trivial’. It is clear that the Central Bank has moved away from a tightening bias, however you certainly don’t get an overbearing sense it has moved to an easing bias either; anyone calling for a rate cut by the RBA in September will no doubt now push out that call to October, although it seems the RBA’s ‘wait and see ’mantra is still very much in play. Interestingly, there was a slight lowering of rate cut expectations in the markets, although the swaps market is still pricing 127 basis points of cuts over the next twelve months. It is way too early to suggest this will play out; we invariably will need to see a major deterioration in the credit markets and the US to fall into recession for this to happen. However, one would say if we avoid these events then AUD/USD could have a longer-term positive bias. Price action though remains unconvincing, with the traders happy to sell above 1.05, and on the downside, support is seen at 1.0419 (overnight low), with a break here exposing 1.0387 (August 23 low) and then key support between 1.0315-38 (200-day moving average and August 19 low).

ENDS

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