Another update to existing positionAnother update not live call out, so focus on management.
First Fundamental reasoning.
1. Monetary Policy Divergence
- **Federal Reserve**: The Fed remains relatively hawkish, prioritising high rates to control inflation. The strength of the U.S. economy has allowed the Fed to maintain or potentially even raise rates further, enhancing USD’s appeal compared to currencies from countries with more accommodative policies.
-Reserve Bank of Australia : The RBA has adopted a more cautious approach, recently pausing on rate hikes due to concerns about slowing domestic growth and the impact of high rates on household debt. This divergence between the Fed's high-rate policy and the RBA’s reluctance to hike makes the AUD less attractive against the USD.
2. Economic Data Disparities
The U.S. economy continues to show resilience, with strong employment data and steady consumer spending supporting USD strength. As economic fundamentals remain solid, investor confidence in USD assets is sustained, putting further pressure on AUD/USD.
Australia’s economic indicators suggest a slowdown, particularly in consumer spending and business confidence. With inflation showing signs of moderating and wage growth remaining contained, the RBA has limited scope to increase rates without risking a significant economic slowdown. This weakens the AUD as it signals limited support from domestic fundamentals.
3. Commodity Demand and China’s Economic Slowdown. Australia’s economy is heavily reliant on commodity exports, particularly to China. With China’s growth decelerating amid property sector challenges and lower global demand, the demand for Australian exports such as iron ore and coal has weakened, exerting downward pressure on the AUD.
Commodity Price Vulnerability. The slowing Chinese economy not only reduces demand for Australian commodities but also adds to the AUD’s vulnerability given its correlation with global commodity cycles.
4. Risk Sentiment and Safe Haven Flows
Global Risk Aversion. In periods of increased risk aversion, such as recent geopolitical tensions and global economic uncertainties, the USD is favored over the AUD due to its status as a safe-haven currency. The AUD, being a risk-sensitive currency, tends to underperform against the USD during such times.
5. Market Sentiment and Positioning
Bearish Positioning on AUD Current market sentiment shows a bearish bias toward AUD/USD, reflecting global investors’ preference for the USD amid broader economic concerns. Sentiment indicators and COT data also show increasing short positions on the AUD, further justifying a short position.
Technical analysis, my confidence rank was still mid 80s, LTF did have good bear strength display plus the overall Dollar strength justified early entry.
This week conclusion on technical side confidence above 90% so it is with the fundamentals.
Updates will follow as the next events unfold
