Societe Generale FX Strategy Research argues that AUD/USD is in a long-term bottoming phase and recommends a buy-on-dip strategy.
On the USD front, SocGen believes that the DXY Index peaked in 1Q17, and expects the dollar to fall gradually in the coming quarters which should support AUD/USD
On the AUD front, SocGen expects the RBA to stay on hold through the rest of the year and to be able to tighten monetary policy in 1H18 if growth and inflation were to rise as it expects.
“The combination of RBA tightening and a secular USD decline argues for going long AUD/USD on another major dip. Drawing from the 2008 low through the 2016 low, the resulting trend line is around 0.70 currently. Beyond this are the 2015-16 lows at 0.68-0.69, which should hold, in our view,” SocGen argues.
Thus, SocGen advises that a dip in AUD/USD towards 0.70 should provide a good opportunity to position for the subsequent long-term appreciation trend.
AUD/USD is trading circa 0.7442 as of writing.
Source: Societe Generale Cross Asset Research
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