Morgan Stanley have been looking into the recent aussie strength and they highlight several factors for it.
- They see a stronger domestic economy
- Structural changes in the export sector
- Strong inflows
They say non-residents have returned in numbers to buy government bonds after 5 quarters of little inflow action and this is due to Australia having a print up of new debt. They note that Japanese investors re-bought A$5.4bn in assets in the last four months to January having previously been sellers over the year before to the tune of A$34bn.
They say that the aussie strength is likely to continue but that it may appear greater in the crosses rather than against USD. On this basis they forecast AUD/NZD to rise to 1.10 this year.
They did have an order to short AUD/USD at 0.9180 back on 19th March with a stop at 0.9280 and PT at 0.8600, though I’m not sure if they stuck with it or pulled it. The analysis of the current situation is a good explanation of what we’re seeing with aussie strength and good information to follow further. With the RBA going into hand sit mode on rates it’s going to be a question of whether the economy can diversify enough away from the current weakness in the resource area into something more sustainable. If not and the economy wobbles, we could see expectations rise for another round of interest rate cuts.
AUD/NZD hasn’t put in a lot of mileage from the testing the long term lows but there’s a strong case for a double bottom in place around the 1.0485/1.0520 area. We’ve broken up through short term resistance with the 100 dma in wait at 1.0832.
AUD/NZD daily chart 02 04 2014
The big level to overcome is the 1.0900/15 area followed by the broken 2005 support line at 1.0995.
