Aussie behaved as we forecasted in our April 11th article, making the last push to the upside before testing the breakout area expected this week. Our limit at $0.7790 was filled on the 19th of April alongside with Morgan Stanley (NYSE:MS) that had a better fill at $0.7800, though market went as high as around $0.7830 on the 21st of April, when many were exiting the market. Selling pressure continued on the 27th of April, when Australian Bureau of Statistics reported the first quarterly deflation since end of January 2009.
That week’s Friday, Deputy Gabenor Guy Debelle in his speech to the Financial Markets World Congress in Jakarta, hinted that RBA coming decision is for the good of the country. We picked that up as a sign of a rate cut, and true enough RBA reduced the cash rate by 25bp last week, making it the lowest in history. The AUD/USD exchange rate has fallen more than 5% since then.
RBA in its recent quarterly Statement of Monetary Policy (SoMP), revised the inflation and wage growth downward, hence raising concerns about the economic growth prospect of OZ nation. RBA reduced its inflation forecast from 2-3% to 1-2% for this year and wage growth is expected to stay low for longer before rising very gradually. The full percentage point reduction in inflation forecast has led many analysts to believe that another rate cut is around the corner. ANZ in its recent report “expected another 25bp cut, most likely in August, but the possibility of a cut as early as June shouldn’t be discounted”.
Looking at the recent CoT report, speculators reduced their net long, by more than 14% last week, for the second time since March 15th. The first time speculators went bullish was back in mid-February when the exchange rate was around 71 US cents per Aussie. We expect that level to be defended. On the institutional side, Morgan Stanley has closed its short in view that recent commodity and risk rally can continue.
Halal Traders is still holding onto our short, looking to exit upon reversal signal.
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