I think DLS could well be right about AUD hitting COVID lows, but how to position and what to expect?
Right now with QT (or at least no QE) there is a global dollar shortage. With rising rates as well, returns on USD look better than many other assets. Shorting AUD for USD will currently gain you a 1% rate differential in your favour without any price movement at all. This makes a medium term (months) bet against AUD via CFDs look very affordable to me.
IMO you never enter a trade without having some well defined exit plan. So, if I’m going to short AUD, what’s the expected end point? Since we were at 0.65 handle in the last 24h, a handle starting with a 0.5 doesn’t seem far away at all. But what could go wrong?
- The interest rate differential collapses unexpectedly. CBs seldom suprise these days…but who knows?
- East Coast gas reservation or nationalisation. Short term, this would be negative due to perceived immediate reduction in export earnings. Long term, this is AUD positive as it would boost competitiveness and maybe tax receipts. Seems unlikely before year end.
- China starts a war. Seems too early to me though.
- Margin call – AUD temporarily moves up more than you budgeted for.
I’m sure there’s more. That’s why I’m appealing to the brains trust!