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Forex Flash: AUD/USD short term bias remains to head higher – Westpac
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FXstreet.com (Barcelona) – The decision by the RBA to leave rates unchanged has surprised the market and this has been enough to push the currency up through the 1.0800 level. Outside of Australia, broader market risk appetite has been supportive for the currency too.
“From here it seems the near term bias remains for AUD/USD to head higher, as the pair remains in a firm uptrend from late last year. The bar for an RBA interest rate cut in March has been raised, while market pricing is still looking at 60% probability of a rate cut. Hence the risk is if this probability falls further the AUD will strengthen beyond the 1.08 level” Westpac Global Strategy Group notes.
Beyond the near term, the Westpac continues to harbour reservations around the risks of a hard Greek debt restructuring though, despite a PSI agreement – low participation, opposition from owners of Greek CDS not to mention brinkmanship between Greece and the Troika around the aid package all carry significant negative headline risk. The improvement in EU stress indicators such as Italian and Spanish bond spreads and EUR basis swaps almost reaching its limits too.
“These stress measures have room to tighten but any further material decline in Italian and Spanish 2yr yields (i.e. beyond 50-75bp) would imply sovereign stresses have been almost completely erased. Coupled with the fact that a number of our proprietary indicators suggest that much of the good news is priced into the AUD, indicates that a more material correction in the currency is still a risk in the period ahead” the team concludes.
Article source: http://www.fxstreet.com/news/forex-news/article.aspx?storyid=32e135a6-f742-4b7b-81f3-c512fd025e40
