AUD buyers staying course & still eyeing 0.75Encouraged by market’s large ‘short’ positionInflation, commodities, RBA policy also citedAUD/USD rally a downside risk for GBP/AUD

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The Australian Dollar’s recovery rally stalled during the week to Friday but some recent buyers of the antipodean currency remain upbeat about the outlook and are still targeting a return to 0.75 for AUD/USD, which implies lingering downside risks for GBP/AUD.

Australia’s Dollar was treading water around the middle of the major currency league table for the week by Friday after a rally that had been ongoing since early February partially reversed this Monday.

AUD/USD had extended its more-than month-long advance with a brief foray above the 0.74 handle to open the new week on Monday, with price action coming amid a further bout risk-aversion across broader global markets.

However, a subsequent rebound for risk assets dragged the antipodean unit lower and left behind in its wake on the charts the appearance of AUD/USD having been stymied by a notable technical resistance level around 0.7365.

“We’re rolling our stop/loss level higher from 0.6950 to the 0.7220 mark and locking in a +1.05% gain. Of course, we were only partially right in our original rationale,” says Bipan Rai, North American head of FX strategy at CIBC Capital Markets.

Above: AUD/USD at daily intervals with Fibonacci retracements of February 2021 downtrend indicating likely areas of technical resistance to any recovery, and shown alongside GBP/AUD.

GBP to AUD reference rates at publication:

Spot: 1.7862High street bank rates (indicative band): 1.7237-1.7362Payment specialist rates (indicative band): 1.7700-1.7773Find out about specialist rates, hereSet up an exchange rate alert, here“We didn’t envisage the unfortunate turn of events in Ukraine, and the corresponding impact of sanctions on the global commodity outlook. However, remaining long AUD/USD is still our highest conviction view,” Rai also said in a Thursday trade update.

Rai and colleagues advocated that clients buy AUD/USD around 0.7145 on February 03 just before the Aussie began to rally strongly and have most recently cited a range of factors for still anticipating that it could rise further toward 0.75 in the weeks ahead.

Included among these are rising levels of Australian inflation and increasingly widespread expectations for it to rise further, which could yet see the Reserve Bank of Australia (RBA) lifting its interest rate later this year.

“This should feed through to wages in the coming quarters,” Rai said on Thursday.

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For its part the RBA and Governor Philip Lowe have both acknowledged that this is now a “plausible” scenario although, for the immediate future, most notable among the list of drivers cited was the currency market’s large residual bet against the Australian Dollar.

Chicago Futures Trading Commission data suggested last week that speculative traders had thrown more money at wagers against the Aussie Dollar than they had outstanding in terms of their residual bets in favour of the U.S. Dollar.

“Positions in the futures market STILL suggest that AUD is the most crowded short out there,” Rai says.

This is an especially important factor in light of the market response to the ongoing Russian invasion of Ukraine, which lifted the Australian Dollar sharply alongside other commodity-linked currencies and weighed heavily on GBP/AUD.

To the extent that any of this reignites the AUD/USD rally over the coming days or weeks, it could potentially also have the effect of sinking GBP/AUD to even lower levels given that it tends to closely reflect the relative performance of AUD/USD and its Sterling equivalent, GBP/USD.

Above: Pound to Australian Dollar rate shown at daily intervals alongside GBP/USD.