Despite the Australian dollar’s recent decline against the greenback in March, hedge funds are steadfastly bullish on AUD. The Australian employment data this week may provide insights and catalyst for an Aussie rebound.
According to ZERO Markets’ Mt4 platform, the currency saw its worst in 5 months performance against the US dollar in March, falling 1.4% as a result of rising Treasury yields and dovish monetary policy by the RBA. However, key support for AUD/USD at 0.75 remained intact, technical indicator – slow stochastic – for momentum gauge pointed to a bullish golden cross. With the Australian economy continue to beat expectations, signs are emerging for an Aussie dollar rebound.
Leverage funds are also resonating with the view on a strengthening Aussie going forward. Forex traders took advantage of the modest pullback in March and saw their net Aussie long positions increased to the highest level since November.
The local unemployment data due to be released this Thursday will confirm the economy is on a strong footing, supporting the bullish outlook on the currency. February’s unemployment rate fell to an eleven-month low of 5.8%. GDP in the last quarter of 2020 grew by 3.1% beyond expectation.
Furthermore, Treasury yields are retreating from a recent high despite strong US employment and ISM data. In addition, the Aussie will likely be supported by the elevated iron ore prices this year.
The only headwinds facing the Aussie are the expected cut in Chinese steel production and carbon border fees.
Overall, CBA analysts commented that the Aussie remains undervalued relative to its fundamentals, and could see further upside within the coming months, with a rise to $0.80 possible by June. AUS/USD is currently trading near $0.7618, with tight spreads starting from 0.0 pips on Tuesday morning.
Key events this week:
- Australia Business Confidence, China Trade Balance (Tuesday)
- RBNZ Policy Decision, Japan Core Machine Orders (Wednesday)
- Australia Employment Data (Thursday)
- China 1Q GDP (Friday)
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