Credit Agricole Projections Warn of Australian Dollar Falls vs GBP and USD
- Written by: Gary Howes
-
Image © Pound Sterling Live 2015.
Credit Agricole tell us why they are sellers of AUD/USD while a professional trader tells us why he is taking a contrarian viewpoint on the Aus dollar's outlook.
The Australian currency remains under pressure against the US dollar with a longer-term downtrend being in place; AUD/USD peaked back in July 2011 when a level of 1.1080 was achieved and since then momentum has been negative with 2014 seeing the pace of decline rapidly increase.
Concerning the aussie's move against the pound sterling, we see the GBP/AUD has been tracking higher since early 2013 with the currency pair currently testing a key resistance zone located just above 1.900.
Technically speaking the pair could well be building the required momentum to breach this point and run higher.
As we can see, we are at a pivotal point whereby the longer-term upside momentum is looking to overcome longer-term resistance. Resolution to this battle will be key to 2015: 
Chart © Pound Sterling Live 2015.
The Negative Australian Dollar Forecast
Credit Agricole tell us they remain bearish on the Australian currency's outlook; as such any strength should be seen as an opportunity to sell the currency.
In a note to clients CA say:
"Regardless of improved risk sentiment we expect the AUD to remain a sell on rallies, at least against the USD.
"This is mainly due to the risk of the RBA turning more dovish. Although the latest employment data suggests improving labour market conditions the risk of further slowing price developments remains intact."
Ahead of the first RBA meeting of 2015 we note markets will be nervous of the potential for a repeat of the kind of surprise sprung by the Bank of Canada who cut rates in January.
The CAD tanked, dragging the AUD lower in sympathy owing to the parallels between Australia and Canada.
Credit Agricole say the potential for a RBA surprise are growing, mainly due to weak external demand conditions as related to Asia and weak commodity price developments.
Accordingly it cannot be excluded this week’s CPI will disappoint.
"Under such conditions the RBA is likely to continue regarding monetary conditions as too tight, which will continue to be reflected as they maintain a cautious stance when it comes to the AUD’s overvaluation," says the French bank.
All of the above stands in contrast to the US where a growing economy leaves a mid-year interest rate hike in play.
Credit Agricole tell us:
"Further improving growth prospects and the Fed regarding more muted inflation expectations as transitory, should keep investors’ Fed rate expectations well supported.
"As such there is room of further diverging RBA-Fed rate expectations to the detriment of the cross.
"We sold AUD/NZD at 1.0650 with a stop loss at 1.11 and a target of 0.9800."
The Contrarian's Case for Australian Dollar Strength
Sean Lee, a professional trader at ForexTell counters the AUD-negative assumption telling us that there are reasons to back the unit.
He tells us he is cautiously exposing himself to further Australian dollar strength based on the following observations:
- EUR/AUD is bearish to my eye and will head back below 1.3000 in coming months;
- AUD/JPY looks technically oversold on short-term charts;
- AUD/USD has fallen from above 1.00 to below .80 on the back of supposed tightening US monetary policy which still hasn’t happened.
- Even if/when it does, will it be a case of sell-rumour-buy-fact?
- Yes commodity prices have fallen sharply but the AUD is one of only a few remaining long-term ‘store of value’ options when it comes to currencies.
- Obviously these are all quite macro factors, barring perhaps the AUD/JPY technicals, and who’s to say that AUD/USD won’t fall to .75 cents and EUR/USD below parity?
"As always there is an element of risk with picking the right entry level and the right timing, but I’m starting small and will build if I get lucky on these fronts," warns Osborne.
Explaining Aussie Dollar Strength
That said, any gains in the AUD should also be seen through the prism of technical positioning amongst investors and traders, as opposed to a return of fundamental strength.
Nick Parsons at NAB Group tells us the room for AUD corrections comes courtesy of the market already being so negatively aligned against the currency:
"Those currencies with the largest existing speculative short positions – EUR and AUD - could see overnight rallies extended a little further whilst net longs – essentially the US Dollar – could be vulnerable to a brief and modest bout of profit taking for no reason other than the lack of fresh news and the imminent month-end on Friday."
Indeed, there will be little risk appetite for the Australian currency ahead of the first RBA meeting of 2015 says Parsons:
"AUD/USD is almost 100 pips off Monday’s low having reached a best level of 0.7968. The rally will be tentative at best unless and until 0.8000 can be regained, and Tuesday’s first RBA meeting of the year hangs over the market like a Damoclean sword.
