While all other major currencies consolidate their latest gains against the buck into the European open, it is the Australian Dollar that once again stands out as the big winner, breaking away to trade by its post-float 0.9850 highs thus far. The driving force behind these latest moves have come on the back of a stronger than expected employment report, which arguably allays fears over an earlier RBA rate decision which left rates unchanged and produced a less hawkish monetary policy statement. However, we would caution bulls at this point, with the currency highly overbought at current levels and in need of some decent corrective action at a minimum. In fact, we would argue that a shift in the underlying trend is more appropriate from here, with the Australian Dollar very close to a major top and on the verge of a long-term secular decline. Cyclical studies help to support this view, while fundamentally, despite some solid economic data on the domestic front, the RBA still needs to be very much concerned with the on goings in the global macro economy, as any threat of a slow-down, or elevated market uncertainty would surely expose the currency to some major weakness. Outside of the attractive yield differential, is the Australian economy really that much better than the rest? We have a hard time digesting this fact, and see the currency at risk from here even in the event of continued recovery in the global economy. In our opinion, it stands to reason that should the global economy stabilize, and should the outlook improve, then other economies will be in a position to start to reverse their monetary policy more aggressively, which ultimately will narrow yield differentials and thereby weaken the value of the Australian Dollar.

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