The Aussie Dollar pair could be the most logical short dollar trade out there amongst the majors, despite the constant chatter of eurodollar parity on most FX trading desks. This view is strengthened by the comparative positive carry that the AUD/USD position would achieve versus those of the EUR/USD and to the CAD/USD. As a reference point, AUD overnight bank rates are roughly 2.25% with the CAD and EU, by contrast, around 0.75% and -0.1% respectively. This means that because the AUD/USD offers a positive carry it is likely to be the cross of choice for traders trying to gain a short USD position. The market, therefore, may be unwittingly over-extended in a long Aussie Dollar bet. Ironically, this could also be the very reason why the AUD/USD has not managed a better rebound when compared to the EUR/USD and the CAD/USD. This is perhaps a sign that long positions are already in a more ‘fully committed’ state there.

China and the RBA

Although China’s poor export numbers this week could cause a direct drag on the AUD/USD, the RBA’s decision to hold rates and the stronger-than-expected Australian retail sales last week failed to impress a firmer follow through in the rebound. Bulls in the Aussie dollar - or accordingly, bears in the Dollar with the Aussie as proxy - may have earned a respite last night when the weak US retail sales incited a sell down in the Dollar index. That being said, should demand numbers in the US economy start to pick up, be prepared for a faster move down on the AUD/USD, compared with other major pairs.
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