Why Aussie is Outperforming

  • What's up with the Australian Dollar
  • RBA seems to be less dovish than others
  • Still risk for additional Yen upside

STRONG AUSSIE - The Australian Dollar has been an impressive gainer in recent days and the demand for the commodity currency continues to be somewhat perplexing. Remember, we are coming off a week of softer Aussie economic data and an RBA rate cut. And on Monday, Aussie was once again in demand despite a slow calendar day and Dollar bids against some of the other major currencies. It seems the fact that the RBA has now cut and that risk is behind, and the fact that other central banks could be a lot more dovish going forward are the driving forces behind the strength. 

CROSS DEMAND - Now I'm not going to kick and scream about it because I'm long AUDNZD. I actually think a lot of this Aussie RBA risk being priced in is a major deal and is creating a lot of Aussie demand away from the Buck which is pushing AUDUSD higher. So for example, the BOE was very dovish last week, while the market is thinking about a more dovish RBNZ this week. And so, with that comes cross related selling in GBPAUD and cross related buying in AUDNZD. So while I think AUDUSD should top out, it doesn't mean it can't outperform against other currencies. 

Still see room for a fresh drop in $USDJPY. Via @joelkruger

THE NEXT ONE - On Monday, I booked a nice profit on my NZDUSD short and this puts us up over 1.5% in August. I will continue to sit back on the long AUDNZD and wait for the SPX500 short to come around. As far as new trades go, keep watching USDJPY. I still believe this market drops to fresh 2016 and multi-month lows below 99.00 and selling rallies is a good strategy. The smaller BOJ package, exhausted Japan stimulus policy and risk for a more severe pullback in global equities all support the idea of another big drop in the major pair. We just have to wait for the trade to come.

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