RBA only temporarily on hold, fade AUDUSD rally

By UBS

The AUDUSD at 1.07-1.08 looks overdone, says Mansoor Mohi-uddin, Head of Foreign Exchange Strategy at UBS Macro Research, who thinks along the UBS Economics experts lines that at least one more rate cut by the RBA will be seen.

UBS makes this call based on “next week’s January payrolls data likely to show Australia’s unemployment rate ticking up to 5.3%, the latest Chinese data showing higher than expected inflation but lower than expected bank loans growth and the Australian dollar still remaining at high historic levels. This risk is compounded by Australian banks this week announcing they were raising their mortgage rates to consumers.”

As a result of UBS concerns about the overvaluation of the currency, the bank issued a recommendation to buy a three month AUD put/USD call option with a strike at 1.03, expiring 4 May 2012 New York cut. The cost was 1.56% of face value and the spot reference price for AUDUSD at the time was 1.0725.”

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