ANZ: AUD/USD Forecast to Peak Within Weeks
ANZ say the AUDUSD exchange rate only has limited room to advance and should ultimately peak within weeks.
At the time of writing the pair is quoted at 0.7628 having enjoyed a solid rally off the 0.70 support line since January 2016.
Betting on further AUD advances has proven profitable as the US Dollar suffers on the US Fed's failure to deliver on interest rate rises.
However, the trend higher cannot be expected to last say ANZ.
“While our forecasts show a gradual depreciation from there, we expect that AUD will trade with some volatility in a USD0.70- 0.78 range before breaking lower in the latter half of 2017,” say ANZ in a client note provided to me by the eFXNews agency.
Given the uncertain nature of the timing of the depreciation, the current low level of volatility, and the skew present in the risk reversal, ANZ recommend using options to capture this range.
“We recommend buying a 6 month AUD/USD0.74/0.71 put spread and selling a 6 month AUD/USD 0.80 call at an indicative rate of AUD 24 pips,” say ANZ.
No More RBA Cuts in 2016: Barclays
Turning to the Reserve Bank of Australia rate cut debate, we note analyst at Barclays believe no more cuts are likely.
At face value, such a call is AUD-positive.
The July jobs report showed that total employment increased 26.2k and the unemployment rate declined to 5.7%, slightly better than expected.
However, the report showed a stark difference between full-time jobs, which fell sharply (-45.4k), and part-time jobs, which increased significantly (+71.6k).
"Following the release of the data, there was no material change in the expectations for rate cuts, while AUD/USD continued to trade in a tight range of 0.76-0.77. The July job report may raise some minor concerns about the strength of the labour market, but we think the reduction in the unemployment rate will still be seen as a sign of ongoing jobs growth," say Barclays.
In the RBA's August meeting it was noted that economic parameters were moving broadly in line with the expected trajectory.
Markets are now pricing in a 48% chance of the RBA moving at its November policy meeting; "however, we believe there is no clear path for rate cuts in 2016, given that the inflation and growth dynamics remain similar to the RBA’s previous assessment," say Barclays.
While the central bank retains an easing bias, Barclays think its next move will depend on inflation dynamics. Australia’s economic outlook remains resilient to external shocks, and unless there is significant AUD appreciation, analysts think there will be no urgency to ease further.
Moreover, with the July labor market data indicating an overall improvement in job creation, analysts expect the RBA to stay on hold through 2016.
Citi See Downgrades to Aussie and NZ Banks as likely to add Downside Pressure
So while banks are forecasting the direction of the currency, others are forecasting the directions of the same currency based on forecasts on the future health of those very banks!
US banking giant, and the world's largest dealer of foreign exchange, Citigroup, has said potential downgrades to Australian and New Zealand banks would likely anchor their respective currencies.
"Both AUD & NZD will note the downgrades to the outlook for Australian and NZ banks by Moody’s (last week) and S & P (this week) respectively. Such an outlook makes it more difficult for banks to pass on central bank rate cuts and which therefore likely adds further pressure on both the RBA & RBNZ to deliver more rate cuts," say Citi.
As a result, Citi believe the 0.7350 area continues to offer strong resistance in NZDUSD but with downside moves capped by the 50d MA at 0.7150 for now with the 0.73 – 0.77 range seen likely to contain AUDUSD overall.