The Australian dollar has been on a wild, and somewhat unusual, ride over the past 24 hours.
After initially falling in the wake of the Reserve Bank of Australia cutting interest rates to a fresh record-low level of 1.50%, it subsequently soared in the hours following, ripping higher on the back of broad-based US dollar weakness.
From the low following rate cut to the highs struck in overnight trade, the AUD/USD gained 2%, not quite the reaction that many had expected.
When rates are cut, the Aussie should fall, textbooks tell you. Not so on this occasion.
While the Aussie has now retraced a tad in Asian trade on Wednesday, it still remains significantly higher than when the RBA cut.
To some, including Ray Attrill, co-head of FX strategy at the NAB, the rebound, particularly if it continues, offers an attractive entry point to position for a reversal.
“The rapid post-RBA rebound in AUD/USD has so far respected important technical resistance around 0.7650,” says Attrill.
“While mindful of the potential for a deeper US dollar drop, we currently see a return to this area as attractive for re-establishing strategic AUD shorts.”
Attrill is forecasting that the AUD/USD will finish the year buying 70 US cents, although he admits that it is “increasingly dependent on a Fed or volatility-induced rise in the USD”.
“Our view to date has been that either the USD would be firmer in H2 2016 because US economic performance drives the Fed to deliver more than is currently priced, or that the USD would be supported by a failure of global risk support to maintain the elevated levels seen in recent months and following the brief spike in risk aversion following the UK ‘Brexit’ vote,” says Attrill.
“If risk sentiment remains supported by the prospect of easier or ‘lower for longer’ monetary policy globally, including the Fed going nowhere, then the upside risks to our AUD forecasts are obvious.
“At this stage we are not rushing to change them, being as yet unconvinced that risk sentiment will remain this elevated in coming months,” he adds.
The AUD/USD currently trades at .7585.