Despite the fact that RBA has left it's main interest rates at record low level aussie has kept on rallying and the main reason is because in current low volatility environment investor who can't make a profit from a barely moving market are chasing yields and AUD/USD has long been one of the favorite currencies for the carry trade.

RBA left the interest rates unchanged at 2.5% and RBA's Stevens said :“The most prudent course is likely to be a period of stability in interest rates,” which clearly suggest the dovish stance from RBA will continue and only when we'll see a pick up in volatility only than AUD/USD will start following this dovish stance until than I"m expecting AUD/USD exchange rate to be stable(see Figure 1).

Here we also have to take in consideration FED policy towards interest rates which in coming months I'm expecting the market to start pricing those rates raise, so keep an eye on US 10y yields for the timing. According to the median of forecasts compiled by Bloomberg aussie should will fall to 0.8700 by the second quarter of 2015.

Figure 1. AUD/USD Daily Chart
  • Conclusions:

As long as volatility stays low it's safe to be long aussie.
Aussie will resume it's downtrend only after:

  1. Volatility will start to pick up;
  2. US markets will start pricing in those rates hikes;

Best Regards,
Daytrader21
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