The Australian dollar dropped on poor retail sales and later on failed to find consolation on the unexciting RBA decision. What’s next for the Aussie?
Here is their view, courtesy of eFXnews:
AUD: Overvaluation In ‘Jeopardy’; Staying Short On Crosses – Credit Agricole
Credit Agricole CIB Research argues that while global reflation would normally be positive for a cyclical currency such as the AUD, the current reflation trade runs on different dynamics as it will likely mean the removal of the extraordinary monetary policy accommodation that is keeping the AUD overvalued.
Moreover, CACIB notes that AUD/USD continues to look vulnerable to a downward correction, especially with the AUD/USD’s divergence from the Australian-US 2Y interest rate spread approaching extremes
Strategy-wise, CACIB prefers to express this bearish AUD on the crosses via short short AUD/CAD and AUD/NZD.*
“We expect AUD underperformance relative to the CAD and NZD given that Canadian and NZ export commodity prices are likely to fair better than Australia’s in the coming months. Canada will be more tuned into the strong US economic story than Australia (and NZ). While strong population and economic growth in general will keep the RBNZ under more pressure to raise rates than the RBA,” CACIB argues.
AUD/USD is trading 0.7578 circa, AUD/CAD is trading 1.0145 circa, and AUD/NZD is trading circa 1.0889 as of writing.
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AUD: Sentiment Shift; Staying Short AUD/CAD – Nomura
Nmura FX Strategy Research notes that AUD sentiment has turned to the bearish side.
“Patchy Australian data, the announcement of macro prudential policy measures to deal with financial stability risks, and a moderation in the Reserve Bank of Australia’s (RBA) tone on the labour market, coupled with a turn in Australian-centric commodity prices is generating a position unwind,” Nomura notes.
In line with this view, Nomura continues to hold a short AUD/CAD position targeting 0.9930 and thinks AUD/JPY should remain heavy in the near term.
AUD: Vulnerable On A Break Of Mid-Point Of 60-d Range – TD
TD Research notes that one of the current key risks for AUD is that China continues to tighten financial conditions and the correction in equities and commodities turns into a larger selloff.
Looking ahead, TD notes that the focus will be on next week’s Australian labor data, arguing that a combination weak employment print and skittish risk sentiment leaves AUD vulnerable to fresh downside risks.
On the technical front, TD notes AUD/USD is currently bumping up to the mid-point of the 60-day range and a break of that opens up a test of 0.7350.
AUD/USD is trading circa 0.7583 as of writing.
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