Westpac dollar index strategy points to a possible short trade if the Dollar Index breaks below 99.40. The bank said that level has held as support for the past two months. It would sell a clear move lower, target 98.00, and place a stop at 99.90.
Westpac said a soft July CPI report and firm steps toward reopening the Strait could act as catalysts. However, it said those conditions have not appeared this week. The bank also stressed that this is not a live short yet. Instead, it wants to wait for the break rather than move early.
Westpac Dollar Index Trade Setup
The Westpac dollar index view stood out among the bank’s latest trade ideas. Notably, the setup depends on price action at 99.40. If that floor gives way, Westpac sees room for the index to fall toward 98.00.
Meanwhile, the bank kept its long sterling basket trade that it entered on July 10. That basket is long pound sterling against the U.S. dollar, euro, Swiss franc, and Swedish krona. The biggest weight sits against the euro. Westpac set a target of 105 from a 100 entry, with a stop at 98.
The bank tied that trade to a possible drop in the UK’s “governability risk premium.” Therefore, the idea rests less on strong UK growth and more on a fading political discount in sterling.
GBP Basket and AUD NZD View
Westpac also said it is watching AUD/NZD near 1.2000. Attempts to break lower failed in both July and August. Additionally, the latest rise has drawn support from the RBA’s hawkish stance.
Momentum now points to 1.2100 to 1.2200, and Westpac said that may offer a tactical long. However, the broader bias still favors selling a convincing downside break in AUD/NZD. For that to happen, Westpac said Australian-New Zealand yield spreads would likely need to extend a six-month downtrend.
There is little on New Zealand’s near-term calendar before the September 2 RBNZ decision. Australia, by contrast, has July jobs data next week and CPI the week after. Westpac’s three main views were a Dollar Index short below 99.40, a long GBP regional basket, and a possible near-term AUD/NZD squeeze higher before any larger downside break.
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Source: InvestingLive
