The Bear Case for AUD/USD:Capitalizing on Aussie Dollar Weakness
Expressing Our View
We expect the AUD to remain weak against the USD, supporting AUD/USD short positions. We believe that the RBA’s tightening cycle is over, supported by rising unemployment figures and moderating inflation. On the other hand, USD should continue to stand tall as Treasury yields climb and the “Higher for Longer” interest rate narrative gains traction. Because of AUD's status as a commodity currency and proxy to China, waning commodity demand and economic woes in China should also limit any meaningful upside for AUD/USD.
Barring inflation surprising to the upside, we think that the RBA has no reason to hike rates any further.
We favour the hypothetical trade setup below in order to express our view.
Short AUD/USD Micro Futures:
We favour taking a short position with entry at the present level of 0.6476, target level at 0.6200, and stop loss above 0.6500 psychological resistance at 0.6550. Losses in AUD/USD could accelerate once monthly low at 0.6370 is breached. The contract may head towards the October low of 0.6200- which coincides with a fundamental backdrop with US 10Y yields above 4.2% and factory protests in China.
This setup delivers a reward: risk ratio of 3.73x.
• Entry Level: Present level of 0.6476
• Target Level: 0.6200
• Stop Loss Level: 0.6550
• Reward: Risk Ratio: 3.73x
We expect the AUD to remain weak against the USD, supporting AUD/USD short positions. We believe that the RBA’s tightening cycle is over, supported by rising unemployment figures and moderating inflation. On the other hand, USD should continue to stand tall as Treasury yields climb and the “Higher for Longer” interest rate narrative gains traction. Because of AUD's status as a commodity currency and proxy to China, waning commodity demand and economic woes in China should also limit any meaningful upside for AUD/USD.
Barring inflation surprising to the upside, we think that the RBA has no reason to hike rates any further.
We favour the hypothetical trade setup below in order to express our view.
Short AUD/USD Micro Futures:
We favour taking a short position with entry at the present level of 0.6476, target level at 0.6200, and stop loss above 0.6500 psychological resistance at 0.6550. Losses in AUD/USD could accelerate once monthly low at 0.6370 is breached. The contract may head towards the October low of 0.6200- which coincides with a fundamental backdrop with US 10Y yields above 4.2% and factory protests in China.
This setup delivers a reward: risk ratio of 3.73x.
• Entry Level: Present level of 0.6476
• Target Level: 0.6200
• Stop Loss Level: 0.6550
• Reward: Risk Ratio: 3.73x