Target price of 1.84
According to a note by the bank's analysts, the aussie will weaken against the dollar and the pound as investors are underpricing rising domestic political risks. By political risks they are talking about challenges to prime minister Malcolm Turnbull's leadership of course.
In their view, they see AUD/USD falling to 0.67 by year-end stating that recent developments also increases the chance of early elections in October. However, they recommend buying GBP/AUD in six-months spot as the "political risks are better priced in GBP but not quite adequately reflected in the AUD".
If I were to pick levels, the pair is now trading above the two key hourly moving averages and is looking to attempt to break above the 200-bar MA on the 4-hourly chart. A firm break of the latter is very much needed to justify a further run in the recent upside momentum so I'd wait for that.
But from a fundamental perspective, it's hard to argue that the aussie will weaken by that much on the basis of domestic politics alone. Historically, domestic politics have done little to have a lasting impact on the currency and I expect this time around it'll be no different.
From a technical perspective, the trade does look attractive but play it according to your risk levels. For me, if I'm taking a longer-term target on the pair I'd look more for a break of the daily moving averages before justifying a further break to the upside as the risk is more defined in such a case.
In June and July, the pair has failed to break above the 100-day MA (red line) and the resistance region between 1.7955 to 1.8000. That will be key resistance levels to look out for in the near-term beyond the two daily moving averages above.
