Hedge funds are bullish on the Australian dollar, and two key events this week may vindicate their convictions.
Australian jobs data and a speech by central bank Governor Philip Lowe could provide the trigger for the Aussie to rise above 78 U.S. cents before it encounters resistance at 80 cents. Leveraged funds hold a net long position of 20,509 contracts in the currency in the week ended June 8, according to data from the Commodity Futures Trading Commission.
The Aussie has been largely wedged in the 76-to-78 cent range since early March as traders sought clues on when the central bank will join peers such as the Reserve Bank of New Zealand in withdrawing stimulus. Last week’s drop in U.S. yields could be another positive catalyst and Skandinaviska Enskilda Banken AB expects the currency to rise to 82 cents by year-end.
“The recent price action suggests that 78 cents remains a key resistance in the near term,” says Eugenia Fabon Victorino, head of Asia strategy at SEB in Singapore. “Although the growth recovery in Australia has come in faster than expected, market participants now require a fresh impetus to add on to existing long positions.”
The Aussie has climbed 0.3% this month to around 77 cents as it trades above its 200-day moving average. It may rise above 78 cents if Lowe’s speech on Thursday indicates that policy makers are looking at dialing back their dovish tone at the next review in July.
Investors are already beginning to anticipate the central bank will change its quantitative easing stance by not extending its yield target at next month’s meeting, while also scaling back its bond-buying program.
Employment data due the same day will also be in focus. Economists expect the jobless rate to have held at 5.5% for a second month in May, with employers adding 30,000 positions during the month.
The conclusion of the government’s JobKeeper wage subsidy has hurt the labor market although both the Reserve Bank of Australia and Treasury expect hiring to resume after a period of adjustment.
While recent indicators suggest the Australian economy is gaining momentum, any gains in the Aussie are likely to be gradual. The Aussie-U.S. dollar’s three-month implied volatility, an indicator of the spot rate’s expected future movement, touched a 16-month low last week.
Below are the key Asian economic data and events due this week:
Monday, June 14: New Zealand performance services index, Japan industrial production, India CPI and wholesale pricesTuesday, June 15: RBA minutes and Australia 1Q house price index, Indonesia trade balance, India trade balanceWednesday, June 16: New Zealand BoP current account balance, China retail sales, industrial production and fixed assets ex-rural, Japan trade balance and core machine ordersThursday, June 17: RBA Gov. Lowe speaks and RBA quarterly bulletin, Australian employment, New Zealand 1Q GDP, Taiwan policy decision, Bank Indonesia policy decision, Singapore non-oil domestic exportsFriday, June 18: Japan CPI and BOJ decision
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