A trade idea from RBC for the week

Long AUD/USD position established at 0.7920

  • Target 0.8080
  • Stop 0.7850

RBC cite (in brief):

  • Expect Friday's fall in AUD to ultimately be a buying opportunity
  • Expect another test of 0.80 in AUD/USD is likely in the coming days
  • Debelle's comments suggest there is little prospect of higher rates in the foreseeable future, but markets are already priced for this
  • In any case, the positive case we see for AUD is driven more by appetite for outright yield than interest rate dynamics
  • With VIX hitting a new 25 year low on Friday and markets still risk-seeking, buyers of dips in AUD should be quick to emerge
  • We see some upside risks to the Australian Q2 CPI, due Wednesday
  • Expect month-end flow to increasingly be the focus as the week progresses and, unless equities have a material correction lower, our model will be broadly short USD and long AUD on expected equity hedging flow

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RBC say on their "Thematic Trade of the Week"

  • Short-term FX trade
  • Trades have maximum duration of one week - closed as the next is released assuming the stop or trade profit levels have not traded
  • Trades are G10 only
  • Directional spot positions in a single currency pair (ie no options or basket trades)