24 Jun 2013
Flash: Australia Strategy profile – Westpac
FXstreet.com (New York) - According to Global FX Strategist Sean Callow at Westpac, “The AUD/USD remains capped by Fed tapering but supported by cheapness on crosses (AUD/JPY).”
Moreover, the AUD/USD should stay in the 0.9150/ 0.9250 range in the near-term, though downside looks most vulnerable in particular. In terms of rates, Australian bonds are not immune to a global bond sell-off, despite their bullish fundamentals. “We think the sell-off is overdue, but we recommend keeping positioning light until the volatility subsides.” Callow adds.
With regards to the AU curve, the break of 95bp in the 3-10yr curve was a significant move - historically precedents suggest that the curve could easily spike higher to 120bp. Finally, despite the volatility in global markets, the AU 3yr EFP spread has been remarkably stable. Medium-term we are biased towards spreads widening but recent price action and the failure of spreads to widen in line with global swap spreads leaves us neutral in the short-term.
Moreover, the AUD/USD should stay in the 0.9150/ 0.9250 range in the near-term, though downside looks most vulnerable in particular. In terms of rates, Australian bonds are not immune to a global bond sell-off, despite their bullish fundamentals. “We think the sell-off is overdue, but we recommend keeping positioning light until the volatility subsides.” Callow adds.
With regards to the AU curve, the break of 95bp in the 3-10yr curve was a significant move - historically precedents suggest that the curve could easily spike higher to 120bp. Finally, despite the volatility in global markets, the AU 3yr EFP spread has been remarkably stable. Medium-term we are biased towards spreads widening but recent price action and the failure of spreads to widen in line with global swap spreads leaves us neutral in the short-term.