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RBA April Monetary Policy Decision:
- RBA leaves the cash rate unchanged at 1.50% on concern about the overheating Australian property market.
- AUD to remain susceptible to the yield spread and broad market sentiment.
- We would sell GBPAUD cross given hovering uncertainty in the weeks ahead.
A steady hand from the Fed in June plus an optimistic RBA should limit downside on AUDUSD, GBPAUD, and EURAUD during the next few months. Further out, though, the underlying AUD trend should be gently lower, as growing bulk commodity supply gradually cools the 2016 price surge. Iron ore should be back under $80/tonne by June, with further (modest) declines likely in H2’2017.
On the flip side, GBP is eyeing on UK growth that slows below 1% as inflation checks a spend-thrift consumer and business investment fades pre-Brexit,2) Outright capital repatriation from slower moving long-term investors including central banks, 3) Initial Brexit talks flounder on the size of the UK's exit-bill.
Consequently, in the prevailing puzzled environment, you could observe that the momentary bulls of GBPAUD struggle to break and sustain above stiff resistance of 1.64 levels, currently trading in non-directly to signal some bearish pressures. We advocate below hedging strategy with cost effectiveness that could hedge regardless of the swings on either side.
Hence, we advocate initiating shorts in futures contracts with mid-month expiries, well, having said that we wrap up with concluding note, short term bulls can speculate this pair whereas long term investors at current juncture contemplating above bearish indications, we advocate shorting futures contract to arrest the potential downside risks upto 1.6244, 1.6131 or even upto recent lows of 1.5905 levels cannot be ruled out upon breach of 1st two targets.
Writers in a futures contract are expected to maintain margins in order to open and maintain a short futures position.
The short hedge is a hedging strategy used by foreign traders or manufacturers to lock in the price of an underlying forex pair or commodity prices to be delivered sometime in the future in an anticipation of price slumps. Hence, the short hedge is also known as output hedge.
