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.
Key Quotes
“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.”
