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Over the past few weeks, speculators have gone from a large long position in the Aussie to a near record short position. Our FX strategists maintain that the primary trend for AUD/USD is up. Among the developed economies, interest rates are still highest in Australia and the RBA is likely to keep rates steady for the foreseeable future. Investors will be forced to play the carry trade to the advantage of the Aussie dollar.
Currently, momentum and positioning indicators are bombed out, suggesting a good entry point for long positions in AUD/USD. A more sustainable upleg in the Aussie should unfold once the money markets stop bringing forward the timing of the Fed’s exit and/or Chinese growth surprises to the upside.
This post was originally published by the BCA Research blog.