Conviction is certainly waning in the short USD trade and it’s leading to stop outs in the HF community. That being said, it’s hard to pin itall on the HF community as RM bought more USDs with us last week than HFs. For me, there are key differences as to why the moderate rise in US yields is different from the Jan 2017 Trump trade, namely yields moved a lot more then, accompanied by Fed hikes and trade policy was protectionist. I still believe in the medium term fundamentals behind the short USD trade, however, I acknowledge that some views are shifting towards the USD exceptionalism narrative and as such, this position adjustment could have a way torun yet. I have stepped aside from most of my positions and look for better levels to rebuild. 1.28 and 0.7640 will provide some decentUSD resistance in USDCAD and AUDUSD, although 1.30 and0.74/75 are much more significant from medium term perspectives.That may seem a way away in AUDUSD but the pair did rally almost12% in just over 2 months to end 2020. Waiting for the RBNZ to shift focus away from QE and back towards rate cuts and still have AUDNZD topside on to play for it.
I remain bullish AUD for now given:
- USD weakness is likely for a while longer during recovery in a classic reflation pattern;
- commodities bullish this year with iron ore leading for H1 at least;
- Chinese growth is still booming, and
- very dovish RBA.
But, yes, positioning is stretched on the USD short side though not so on the AUD long:
There will be vol!