AUSTRALIA FOCUS : FIDDLESTICKS CANDLESTICKS
If you were scratching your head last week watching AUDUSD price action, keep scratching and say Fiddlesticks ! Many a trader died trading the AUD this week.
It was the AUDNZD gangster pair earlier in the week, as the RBNZ reversed their interest rate stance on 30 April, before the EURAUD and then the GBPAUD !!! All the favourite crosses being squeezed, slaughtered and hung out to dry !
An some of the justifications were quite imaginative ! with some analysts saying that the AUD rallied sharply after the RBA rate cut because the RBA effectively removed explicit easing bias in their statement, making RBA governor look slightly foolish in the national news.
RBA’s Stevens under fire as $A rises
And there is nothing much the authorities could do about it except this. Ho ho ho !
“…..Much of the trading reviewed to date was linked to position unwinds by automated trading accounts linked to risk management logic………………This lack of liquidity distorted the execution logic in the algorithms of some participant systems.”
It is a fine line indeed.
If you had ignored data and focused on the headlines, you would have a case for being bullish on Australia this week – commodity prices rebounding and the largest rights issue on record in Oz out of NAB for A$5.5 bio which would see considerable inflows pre-offering (which closed on 8 May with the retail tranche coming up).
A massive shift in the bond curve over the past week and we have interest rates higher by some 0.25-0.45% over a month in the >5 year tenors which has brought us back to where we were at the start of the year. Therefore I think the bond waters are starting to look safe again as 10 year yields back up towards 3%.
As for the currency, I believe we will settle for a new range 0.77-0.82 against the USD, after the massive moves of the past 2 weeks, and largely benefiting from commodity price corrections although the outlook for China dims much hopes for a sustained rally.
Leaving with the indicative bond prices.