Yesterday’s extremely high Australian CPI numbers had the potential to set off a nasty short squeeze. Instead, the pair kicked 90 pips higher and then stalled. Since then it’s given back the gains and then some.
AUD/USD got a bit lift from the CPI numbers but what’s surprising is that it didn’t last. The data was way above expectations and that’s the kind of headline that could cause a protracted squeeze in a crowded short trade. Instead, the shorts showed a rocksteady hand and if that lasts, it’s a bearish sign.
Watching market reactions to news is often more important than the news itself. The Bank of Canada decision wasn’t as dovish as most analysts thought it would be but the loonie plunged anyway — that was a sign. Today’s retail sales were stronger than expected and CAD hardly showed a pulse.
The Australian dollar is back in free-fall mode now, hitting a fresh low since 2010. Support is virtually non-existent.
If you’re looking for the next shoe to drop, look no further than New Zealand. It’s been an island of FX tranquility because of carry and talk of rate hikes but carry traders have a way of rushing to the exits when the momentum begins to swing.
