Today should be a relatively uneventful day in the forex markets. We’ll learn mostly about net speculative positions, which should be interesting in terms of seeing where traders are placing their bets as to future anticipated moves in oil, gold, commodities and currencies.
This has been a week in which the heart of the European Union has suffered a tragic blow with the extreme Islamist terrorist attack, in a week that is holy for Catholics in which Easter is celebrated. This has had some effects on the markets, namely in helping to put pressure over the GBP, due to the driving sentiment in the markets that these attacks will help to persuade most British people to vote for Brexit. The GBP has likely been the most obvious market victim of these attacks, so many GBP short traders got burned by the dramatic events in Brussels.
On another note, just as Ridge Capital Markets has forecasted here more than once, the USD has recently staged a remarkable recovery against several currencies, including commodity currencies, such as the AUD. The succession of comments by different Fed officials in support of the continuation of the rate hike cycle, which is now being repeatedly mentioned as a possibility in April, has been supporting the USD, which, after its correction, is now mostly out of large sellers and finds grounds to rise again.
Also, the PBOC has devalued the yuan once again, which is yet another sign of how China is trying to cope with its economic landing – and with its over-leveraged banking system’s problems. This is another pressure that is likely to keep sending commodities down, with the AUD being an obvious victim of China’s many problems and consequent decreased appetite for its commodities.
That is why Ridge Capital Markets believes that there is still plenty of room for the USD to go up and the AUD to come down, so we recommend traders to go long the USD/AUD.
After all, Australia’s Central Bank has been aggressively devaluing the AUD, knowing that Australia’s commodity export dependence will go on suffering shocks coming from China. On the other hand, the Fed seems to be strengthening its already stated commitment to further rate hikes, so we believe the USD is going north, the AUD is going south, and traders are likely to make a profit by positioning themselves correctly in this ride.