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Brief thoughts on the AUD/USD pair

Written by Sam Coxhead on July 29th, 2011.      0 comments

10:45 AM (NZT) The AUD has been in demand since Wednesdays higher than expected inflation number caused the interest rate market to reassess their expectations from the RBA. Over the previous few weeks pricing has suggested a reasonable chance of a cut to the cash rate over the coming months.  But this .9% 2nd quarter inflation number has reversed the tone and now pundits are calling for a hike of 25pts to 5.0% at next week’s RBA cash rate review. ANZ has called for a hike next week.
In the US there has been the ongoing debacle surrounding the raising of the Federal debt ceiling. This embarrassing situation is likely to be sorted over the coming days. To my mind the issue is not surrounding the raising of the ceiling but more so the various budgetary strings attached. The credit agencies remain poised to cut the US credit rating for the first time since 1941 ,if a reasonable cost cutting plan is not put in place. The threat of a downgrade is the central issue at play, and has seen the US dollar weaker across the board over the last week.
As a result the AUD/USD has set fresh record highs at 1.1080, before easing back over the last 12hours as the appetite for risk starts to wane. Equity markets have had a very soft week and European debt spreads started to move wider again which is generally US dollar supportive, and these factors have helped pull the AUD back from the highs.
With the RBA meeting on Tuesday next week, expect mainly sideways trade in the meantime. Any dips should see buyer emerge and the topside will be limited to the resistance at the record highs at 1.1080, as it has been up there twice now and failed to break through.
Needless to say current levels represent excellent value buying of USD with AUD. The current interbank rate is 1.1010.