AUD: Short-Term Market Caught the Wrong-Footed – BBH
Research Team at BBH, suggests that the short-term market was caught the
wrong-footed when Australia reported an unexpected decline in Q1 CPI.
“The 0.2% decline contrasts to expectations for an increase of the same magnitude. The year-over-year rate fell to 1.3% from 1.7%. Expectations were for an unchanged pace. The weighted median and trimmed mean measures also softened. The disappointing inflation data may have been distorted by Easter, but the market has moved to price in an increased risk of the central bank to respond with a rate cut, either next week or under the more favored scenario in early June.
The Australian dollar has appreciated almost 10% on a trade-weighted basis since the January lows, and nearly 15% against the US dollar. The speculators in the futures market have built the largest gross long Australian dollar position in three years. Many market participants look at the net position (two-year high), but it is the gross longs that are the better measure of the potential pressure of the reversal. We have been tracking the deterioration of the Australian dollar's technical tone and noted that last week's highs were not confirmed by the technical indicators.
Trend line support is still not seen until closer $0.7475 today, which is also near the lows seen earlier this month. The Australian dollar has seen no bounce in Europe and is pinned near $0.7600.”