The Australian dollar is still trading above .75 cents level and largely unchanged over the past 24 hours as it got caught in a tight range.
“There seems to be a lingering bearish bias among traders and investors who are holding off buying the Aussie dollar,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
He added that the solid NAB Business survey results (released yesterday) and the overall increase in risk appetite among investors would have provided a push higher to the Aussie.
“The fact that the data failed to push the Aussie higher tells of an interesting bearish bias among traders and investors,” he added.
However, he pointed out that it’s not only about Australia.
“If you draw a line from the latest Bank of America Merrill Lynch survey of big institutional investors around the globe you can see the responses that investors have become more concerned about the kind of drivers that usually impact the Aussie,” McKenna said.
Overnight, there’s also news of “China’s credit tightening” being seen as the key tail risk.
McKenna also mentioned that the percentage of global managers overweight stocks dropped 5% to 40% the latest survey showed while 58% are net underweight bonds.
He said: “That tells you that these managers see rates as rising which, given the RBA’s neutral policy stance, could lead to spread compression between Australian and other bond markets. Especially the US which we have seen recently.”
McKenna also said if bond spreads were the only driver the Aussie would be substantially lower.
“But currencies are complicated beasts with myriad drivers,”
“At the moment, the Aussie is caught and we’ll see how the data flows over the next month. Maybe Australia has to once again prove the doomsayers and handwringers wrong to get the buyers back,” he said.
Meanwhile, the British Pound has recovered some ground overnight.
“Key to the Pounds rally was the release of higher than expected inflation data with the headline CPI print of 2.9% year-on-year higher than the 2.7% expected,” McKenna said.
He added: “The pound rally kind of puts Mark Carney and the Bank of England (BOE) in a bind some say when the UK Monetary Policy Committee (MPC) meets later this week.”
“But I’d argue that just like the ECB is looking through growth to inflation so Carney might look through inflation to growth,” McKenna said.
In Asian currencies, the Japanese Yen is also fairly quiet sitting near 110.
“And it seems utterly mispriced at this level with Japanese data rolling over recently and the Bank of Japan (BoJ) meeting later this week,” McKenna said.
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