It is trite to say that not all markets move in straight lines up or down, but in the case of the Australian dollar, the rally from below 0.9000 a few months ago to around 0.9400 at present has been quite powerful…and profitable.

In February, the call was for the AUD to move to parity over a medium term time frame and it is important to highlight that this bullish structural view still holds. By late 2014 and into 2015, the AUD is likely to be at parity or higher.

But what is somewhat disconcerting for that bullish view is a turn in market and economist sentiment. There are an increasing number of people who have shifting from calling the AUD lower from when it was below 0.9000 and are now bullish. It is unlikely their clients who shorted the AUD below 0.9000 are all that thrilled having been hit hard with the 5 per cent appreciation in the AUD.

Two unquantifiable drivers of currencies are positioning and sentiment. These were screaming buy signals for the AUD a few months ago as the bulk of the market swallowed the RBA warnings on AUD overvaluation hook, line and sinker. The RBA was barking up the wrong tree, but that did not stop the herd following the RBA down the garden path. Having been hurt on that call, there are now the capitulation forecasts calling the AUD higher. This screams, “take profit and short the AUD around current levels”.

So that is what I am going to do.

A step down for the AUD towards 0.9150 or so seems a fair short term target. Let’s see how the data flow, both globally and domestically, pans out in the days and weeks ahead. If there is a lessons from markets in the last 25 years or so it is that it pays to swim against the tide after the consensus has been so wrong and when there has been a capitulation in a wrong view. For the AUD, that seems about now.