I shorted the AUD against USD at 77.4 with a stop at 79.5. There looks to a bit of a resistance point just above 78 where I want to give myself a little wriggle room as perhaps many may stop out between 78.7 to 79.4. At this level I essentially moved from being 3% of the portfolio underweight AUD to 8%. For some perspective 8% is a meaningful position and 10-15% would be significant. From when the AUD/USD some years back was above 95 the underweight was generally more than 10% for the profitable move down to 75 over the last 5 years or so until late last year.
Whilst one can argue the AUD rally is based on fundamentally an increasing commodity price environment I feel this can easily come unstuck. As mentioned above I am only selectively bullish on certain commodities. The Australian economy is more exposed to the commodities I am bearish on, those that are more correlated to a positive global growth environment.
Some of the sentiment measures I have seen lately indicate shorter term traders now betting on a weaker USD, this certainly differs to what I wrote about when the blog started in January. Then I discussed the bullish USD trade as a classic “crowded” trade. I just regret not extrapolating that them to going underweight USD, instead of just covering my long USD position.
Fortunately, the weak CPI has transpired since and we are at 76.50 as I write having seen below 76. I have a target of 74 for the time being on this particular trade.