Australian dollar settles after busy 24 hours

The Australian dollar continues to retreat from its RBA-inspired highs.

"More likely is that they believe that it is going to fall from here without their encouragement." - ANZ Research.

A significant ‘short-squeeze’ on the Australian dollar saw the currency make gains in excess of a percent against the likes of the pound sterling following the August RBA event.

The RBA told the market it is happy with the value of the Australian dollar. Granted, nothing was said about the value of the AUD but by omitting any mention of the currency markets saw this as a sign that the Bank may not be willing to push the currency lower.

The buying snowballed as a market which was heavily aligned against AUD were forced to bail out of their positions.

Markets have calmed down in mid-week trade but the Aussie has held the lion’s share of its recent gains.

Analysts at ANZ Bank in Sydney reckon that just because the RBA has dropped its mention of the AUD in its communication it does not mean the Bank is not wanting to see a lower exchange rate:

“It is highly unlikely that the RBA Board now suddenly feel that the Australian dollar is right where it should be or that it is at some ‘fair value’. More likely is that they believe that it is going to fall from here without their encouragement. This suggests that they are reasonably confident that the Fed will raise rates in the next few months and also may hint at some concerns around emerging market growth that they are not willing to voice explicitly at this stage.”

ANZ say they do not believe that anyone should read today’s statement as being bullish for the Australian dollar other than to say that it reinforces our view that the RBA is on hold for the foreseeable future (rather than likely to cut rates anytime soon).

Traders See Opportunity

Sean Lee, a professional retail trader, says from a short-term strategic viewpoint the best approach to the Aussie dollar is to buy it on any dips.

Here is his reasoning:

  • Tuesday’s reaction to the RBA suggested to me that the market is short of AUD across the board;
  • AUD made strong gains against the NZD, CAD, EUR and JPY.
  • NZD/USD strong technical support holding thus far at .6500;
  • The market now knows with 90% certainty that, barring a terrible jobs number on Friday, the US will be raising rates by 25bps in September;
  • We have been waiting a long time for this and the USD has rallied a long way in the meantime so will it be a case of ‘buy the rumour sell the fact’?

"I prefer to play the AUD/USD from the long side in expectation of short-term support holding firm near .7320," says Lee.