AUD/USD: Expensive, Vulnerable, And Set To Correct Lower
In Australia, January unemployment rate came out slightly below expectations (5.7% vs 5.8% expected), as well as the participation rate (64.6% vs 64.7% expected). We did not see any significant market reaction and AUDUSD is still trading at post-US election highs.The main drivers of AUD gains have been external this month, with the better risk environment providing support. In our view, AUD remains vulnerable.Our BNP Paribas Positioning Analysis indicates that it has the longest position in G10 (+32 on a -/+50 scale) and our short term fair value model STEER™ suggests that the pair is too rich even to current levels of rates and equities. We think the USD has more to gain from the current reflationary environment than the AUD does. As Fed pricing and US real rates adjust higher, we expect AUDUSD to correct lower.