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Australian Dollar / US Dollar (AUD/USD) : Cheap purchases

04/11/2012 | 09:35am
Opinion : Bullish above USD 1.01
Target price : USD 1.06

Australia's currency is accelerating downward on account of speculation about a rate cut by the central bank (RBA) and the publication of an unexpected trade deficit. However, the currency should recover in the short term, driven by Chinese imports.

Although it has announced a third consecutive status quo on the 3 april meeting, the monetary authority is expected a growth rate below expectations. While inflation and growth are close from initial targets, the institution is concerned about the slowdown of the Chinese economy, the largest trading partner of Australia. Thus, the RBA suggests that it will cut down soon its interest rates, making the AUD less attractive to investors.

Moreover, the market learned the next day that the Australian trade balance showed a deficit of 480 million Australian dollars in February while the consensus of economists expected an excess of 1.1 billion. A very disappointing indicator for a country whose growth is the basis of its foreign trade.

Yet the picture is perhaps not so dark. Indeed Chinese manufacturing activity rose in March, well above analysts' expectations. Technically, the prices now include negative signals sent to the markets in recent days while the Australian currency traced 50% of the last bullish movement began in late 2011. We target a return to 1.06 USD, while a further decline under 1.01 USD will invalidate our scenario.

Australian Dollar / US Dollar (AUD/USD) : Australian Dollar / US Dollar (AUD/USD) : Cheap purchases
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