Currency investors should consider staying short AUD/USD and use rebounds to establish short positions at better levels ahead of the RBA meeting this week, advises Barclay Capital in its weekly FX pick to clients
The trade is macro-technical driven. The following is the rationale behind this call along with the details of Barclays' recent short AUD/USD position.
On the macro rationale: RBA to cut this week:
"We narrowly favour a 25bp rate cut by the RBA, to 2.00%, on 7 April (Tuesday), given that the RBA is indirectly signaling it may act sooner than it previously thought. The OIS market is pricing in an 80% chance of a cut in April," Barclays projects.
"The RBA has long held the view that a lower exchange rate is needed to play a greater role in helping to rebalance the economy amidst the mining downturn. As such, we think the recent USD pause, driven by the market’s reassessment of the timing and pace of the Fed’s tightening cycle, could be a factor driving the RBA to act sooner and faster to bring about a lower AUD exchange rate," Barclays adds.
"Given our view that RBA will cut in April rather than in May, and rising risk of a sub-2% cash rate later this year, we have gone short AUDUSD," Barclays argues.
On the technical rationale: 0.7940 area to cap:
"Our bearish AUDUSD view is encouraged by the break to new lows for this year. Selling interest in the 0.7940 area is expected to cap upticks in the near term," Barclays clarifies.
"An absence of basing signals points lower towards initial targets in the 0.7450 area. Beyond there we are looking towards greater downside targets near 0.7100," Barclays adds.
The trade: short AUD/USD:
In line with with this view, Barclays maintains a short AUD/USD from 0.7615 with a target at 0.70, and a stop at 0.7940.
