Sean Callow, Research Analyst at Westpac, explains that there is a sour tone to commodity currencies that might take some time to improve.
“US-Canada trade tensions have re-ignited. This is a worrying development after optimism had grown that the US Treasury semi-annual FX report this month signified a less abrasive trade stance from the White House. CAD and MXN have been volatile, causing some collateral damage to trade-sensitive AUD and NZD.”
“Combined with leveraged funds’ stubborn net long AUD positions on CME, near term risks lie towards 0.7400. But we find it hard to be bearish beyond that level. Given the bounce in March jobs and inflation back inside 2-3%, the RBA is unlikely to be dovish enough on Tue to inspire market pricing for another rate cut beyond the current small risk.”
“Moreover, robust foreign demand for Asian equities normally correlates with a resilient AUD. Look for 0.7400 to hold, 0.7550 to cap.”