14 Oct 2013
Flash: Long AUD/JPY with potential 1st target 96.00 - Westpac
FXstreet.com (Barcelona) - In view of Jonathan Cavenagh and Rob Rennie, FX Strategists at Westpac, amid a potentially protracted US shutdown and debt ceiling impasse, demand for the USD in Asia should weaken.
Key Quotes
"Pick up any financial paper in the last couple of days and stories about counterparts 'avoiding' short dated US T-bills for collateral will certainly be prominent. China will doubtless be vocal, lecturing the US on financial matters at the weekends' IMF/ World Bank meetings. Asian central banks are likely to note that they "will take action, if needed, to safeguard the purchasing power of the reserves". None of this is good for the status of the US$ in Asia in our view."
"While it might feel as if we are drawing a long bow here, we think this has much to do with Japanese aversion to the concept of default, hard or soft. For us, this undermines the attractiveness of the US$ in Asia."
"We have therefore added long AUD/JPY to our Forex Focus portfolio at current levels ie 93.27. While buying AUD/JPY ahead of what could still be a long and drawn out US Government shutdown and debt ceiling debacle may not feel the correct thing to do, the logic we are using here is that this undermines Japanese (and Asian) demand for the US$, and boosts it again for the A$ with the Yellen/ Fed backdrop an important source of support. We would look to add on weakness back to 92.20 and run a stop at 91.70. A sustained break above 93.75 would suggest a first target of 96 with potential to move higher."
Key Quotes
"Pick up any financial paper in the last couple of days and stories about counterparts 'avoiding' short dated US T-bills for collateral will certainly be prominent. China will doubtless be vocal, lecturing the US on financial matters at the weekends' IMF/ World Bank meetings. Asian central banks are likely to note that they "will take action, if needed, to safeguard the purchasing power of the reserves". None of this is good for the status of the US$ in Asia in our view."
"While it might feel as if we are drawing a long bow here, we think this has much to do with Japanese aversion to the concept of default, hard or soft. For us, this undermines the attractiveness of the US$ in Asia."
"We have therefore added long AUD/JPY to our Forex Focus portfolio at current levels ie 93.27. While buying AUD/JPY ahead of what could still be a long and drawn out US Government shutdown and debt ceiling debacle may not feel the correct thing to do, the logic we are using here is that this undermines Japanese (and Asian) demand for the US$, and boosts it again for the A$ with the Yellen/ Fed backdrop an important source of support. We would look to add on weakness back to 92.20 and run a stop at 91.70. A sustained break above 93.75 would suggest a first target of 96 with potential to move higher."