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Aussie should remain lively in the week ahead - Westpac

FXStreet (Bali) - Aussie should remain lively in the week ahead, with reductions in long USD positions still a risk that may benefit the currency near term, notes Westpac.

Key Quotes

"The FOMC minutes sparked sharp declines in US yields and delivered a body blow to speculators positioned heavily long US dollars, as we discussed last week. Given too that our data surprise model is warning of potential US data disappointment in coming weeks, USD seems likely to soften further near term."

"One obvious beneficiary is AUD. As we noted last week, there were already some reasons to suspect AUD/USD was ready for at least stabilization. The main downswing in iron ore prices is probably behind us, with high cost mines in China likely to reduce output in coming weeks."

"Australia’s domestic story was already neutral rather than negative, with the RBA firmly on hold as it focuses on excessive investor demand for housing."

"The Sep labour force release was even more dramatic than expected, as the day before the report the ABS announced it was dropping the seasonal adjustment that had infl ated the Aug headline to a stunning 121k. This was revised to a 32k gain. Hence the -30k print in Sep was a disappointment, but taken with understandable skepticism by markets. AUD/USD slid under 0.88 then rebounded sharply."

"There is plenty of life again in AUD/USD, with 1 month realized volatility around 11% versus <6% a month ago. The Aussie should remain lively in the week ahead, with low US yields pressuring the USD bulls."

"Given the growth outlook in Europe and Japan that worried the FOMC, reductions in long USD positions seem more likely on higher yielding AUD than EUR and JPY."

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