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2 May 2013
Forex Flash: AUD/USD, risks to break 1.02-06 range skewed to the downside - Societe Generale
FXstreet.com (Barcelona) - According to Societe Generale Kit Juckes, "over-stretched valuations have been a barrier to further gains for higher-yielding currencies, but as soon as the US rate cycle turns the dollar will embark on a long-term re-pricing... "
On the AUD/USD, it continues trapped in a 1.02-1.06 range for 10 months now, "due to those 3.1% yields, but can't get higher and when/if that spread gets eroded significantly further, it will fall."
Kit adds: "At some point better US data will make the Fed talk more about ‘tapering off' bond buying and the markets will think about what policy normalisation might look like. Our end-year 10yr Treasury yield forecast (2.75%) may look miles and miles away at the moment, but it is clear that it would dramatically undermine the value of (for example) Australian government bond yields. If ‘carry' is the driver of investor behavior above anything else, even a 1% rise in US yields changes quite a lot."
On the AUD/USD, it continues trapped in a 1.02-1.06 range for 10 months now, "due to those 3.1% yields, but can't get higher and when/if that spread gets eroded significantly further, it will fall."
Kit adds: "At some point better US data will make the Fed talk more about ‘tapering off' bond buying and the markets will think about what policy normalisation might look like. Our end-year 10yr Treasury yield forecast (2.75%) may look miles and miles away at the moment, but it is clear that it would dramatically undermine the value of (for example) Australian government bond yields. If ‘carry' is the driver of investor behavior above anything else, even a 1% rise in US yields changes quite a lot."