Sean Callow, Research Analyst at Westpac, suggests that trapped AUD/USD longs can only hope that Chinese markets become calmer as Beijing hosts the “Belt and Road” summit.
“Chinese press this week has reiterated that the drive to reduce excess leverage is continuing. Today’s -5% opening on Dalian iron ore and 7 month lows on the Shanghai Composite suggest AUD is at ongoing risk of collateral damage from this source.”
“Leveraged funds on CME have been slow to unwind the AUD longs built in Jan-Feb. We may need to see these positions near flat before AUD/USD is ready to stabilize, then rally. This seems likely to be in the 0.7250-0.7300 area.”
“On the positive side, fair value is still well above spot and the RBA’s optimism is keeping it firmly on hold. Low equity and FX volatility also argue against too much gloom on AUD.”