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IG Markets Forex thoughts

IG Markets Forex thoughts

AUDUSD

Again, the AUD (and the NZD) remains the poster boy of the forex market, with AUD/USD rallying off the 55-day moving average to record an overnight high of 1.0721. We mentioned this level as potential support yesterday and this was validated as traders looked to use the dips in the price as a good entry, despite massive headwinds coming out of the Eurozone. Chicago Fed President Charles Evans helped to really set a fire underneath the Aussie, revealing that ‘he would have wanted to do more’ at the August 9 meeting. This intensified the speculation that the Fed are armed and ready to deploy a fresh round of asset purchases in the foreseeable future. The Fed minutes, released several hours after Mr Evans made his comments, showed that the Fed are taking an increasingly dovish view and that we are in for what looks like a very volatile and interesting ride going into the September 21 meeting. Domestically, today’s private sector credit print, showing a 0.2% gain in July, was in line with economists’ forecasts; this did little to affect the forex, fixed income or credit markets, with 126 basis points of cuts still expected over 12 months. CBA suggested in a strategy note to clients that real money managers tend to adjust hedge ratios at the end of the month, writing that ‘during months that the equity market endures a net monthly decline, real money managers tend to be left over-hedged on the value of their offshore equity assets. Consequently, real money managers often have a requirement to reduce their hedge ratio’s and in doing so, become net sellers of the AUD at the end of the month.’ CBA suggested that it expects AUD/USD therefore to dip to around 1.0500/20. However, it advised that this dip should be used as a buying opportunity, with a move back to 1.07 expected. Whether this materialises or not is yet to be seen, however we do see caution in the short term ahead of tomorrow’s Australian retail sales and Chinese PMI numbers. Tonight’s ADP private sector jobs report will be interesting, and traders will likely asking; if the data is worse than expected (consensus currently calling for the creation of 110,000 jobs) will we see the AUD fall as risk appetite drops, or will it rally as the chances of QE3 increase? This could really set the tone to determine price action on future economic releases.

ENDS

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