CIBC World Markets Research argues that investors should be cautious on AUD as the currency looks likely heading towards a near-term correction on the ground of the following 4 reasons:
1- Aussie dollar is generally the most correlated major with global growth assumptions and sentiment and as such it remains vulnerable as long as the current risk-off tone persists.
2- Speculative long positions in AUD remain almost double the average of the past year, leaving room for an unwind to hit the currency.
3- Iron ore prices have reversed their recent gains, opening the door to further unwinding in long speculative currency positions.
4- The central bank also doesn’t appear to be in any rush to tighten policy, with spare labour market capacity and subdued wage pressures keeping the central bank on the sidelines until next year.
"Add it all up, and it seems likely that the Aussie dollar could be in for a near-term correction. However, as sentiment improves, the currency should begin making back those losses and more, over the back half of the year," CIBC concludes.
AUD/USD is trading circa 0.7636 as of writing.
Source: CIBC Economics – CIBC Capital MarketsOriginal Article
