AUD oversold, to push higher in the short term

Not much is going right for the AUD. Board members of the Reserve Bank of Australia appear to be competing in outdoing themselves in talking the currency down, with latest comments from the RBA’s Ridout indicating a preference for AUD/USD 0.80 to be reached compared to 0.85 stated by Governor Stevens previously.

Concerns about slowing growth in China have added to the pressure on the currency. Indeed, worries about the impact of weaker Chinese growth on Australia’s economy have grown given the strong trading links between the two countries.

Such concerns have resulted in a drop in AUD speculative positioning (CFTC IMM) to its lowest since September 2013 and not far from its all time low. It’s easy to be bearish on the AUD but I suspect that negative sentiment for the currency is looking overdone.

Admittedly in an environment of elevated risk aversion it is difficult for AUD/USD to rebound as indicated by the risk reversal skew but I do not expect the pressure on the currency to be sustained.

AUD/USD near term support seen around 0.8633. Resistannce seen around 0.8825.

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