AUD/USD: Buying the dips below 0.77 looks appealing – Westpac

Even as the AUD/USD pair slipped under 0.7600 earlier this month, economists at Westpac saw the underlying up trend as intact. This week’s rebuff from above 0.7800 strikes the Australian bank as a buying opportunity, with any trade into the 0.7600 to 0.7700 region appealing for longs targeting a return to above 0.8000 multi-week/ month.

Aussie is cheap below the 0.7700 level
“The huge jump in spot iron ore prices to 10 year highs around $187/tonne are backed by record Chinese demand and the ongoing constrained supply confirmed by Vale, BHP and Rio this week. Australia seems set to continue to report historically large trade surpluses. We think the implications of the iron ore price surge are being underestimated in FX markets, with the midpoint of our short term fair value model rising to 0.80, but should come into clearer focus as the federal government’s annual Budget looms on 11 May.”
“There is concern over Australia’s vaccine rollout and the end of the JobKeeper wage support scheme, but employment is already back above pre-pandemic levels, the NAB business conditions index is at a record high and Westpac consumer sentiment at an 11 year high. The RBA will maintain its dovish tone but that still leaves plenty of upside room within A$ fair value ranges.”

“The US$ could, and arguably should, garner support from the super strong US data that will be released through May and beyond, plus the explosion of Covid cases in India; China/Taiwan incursions and Russian/Ukraine tensions could also exert downward pressure in risk sentiment in the weeks ahead.”

“We look to buy the dip below 0.7700, then add on any further weakness to 0.7600 with a target of the aussie returning to 0.8000 and potentially higher later in May-June.”

“The trade will be run with an initial stop at 0.7525, but this will be raised should A$ start to rebound.”