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Thoughts on the AUD/USD pair.

Written by Sam Coxhead on May 19th, 2011.      0 comments

2:00 PM (NZT) The AUD/USD pair has traded a relatively stable range over the last week. The daily gyrations between 1.0500 and 1.0700 have been reasonably orderly.
1.0700 remains the cap for the time being , and given the AUD’s inability to break through this level in a risk on, higher commodity market environment in the US session overnight, this cap will be substantial resistance. The course of the AUD’s relative underperformance can mainly be attributable to the credit agency Moody’s credit downgrade of Australia’s four large banks. The motivation for the downgrade has been driven by the ongoing reliance of the banks for funding in the  offshore credit markets. Moody’s  are late on their call by around 3 years, but rightly perceive the risk is that offshore credit markets deteriorate, and funding options for the banks dry up when they need them most.
The US Federal Reserve also released the minutes from its last cash rate decision meeting, and this gave few surprises. Modest steps over the coming months to withdraw extraordinary stimulus measures will be made , and they acknowledged the presence of some inflationary pressures. It remains that any move higher in the cash rate would be towards the end of the year at this stage.
Of note also overnight was the push higher in the US interest rate markets. Higher yields on US Govt bonds traditionally supports a higher USD, and this was the case as the commodities index was up by 2.4%, the USD was not under as much pressure as might normally be the case.
At any rate, the current Interbank market is 1.0555. Solid support is in place at 1.0480, and break below this will enable this pair to move lower.