In its latest client note, analysts at Morgan Stanley offer their view on the Australian dollar, in light of its strong positive correlation to the risk trends and the Treasury yields.
Key Quotes:
“AUD – its correlation to US rates turned meaningfully positive and its correlation to risk, already positive, strengthened further.
The macro environment in which risk appetite weakens further and the Fed’s balance sheet normalization ends faster than expected, in turn likely leading to lower yields, bodes poorly for AUD.
This is particularly true when factoring in a worsening domestic outlook as well.
While CPI printed above expectations, business confidence continues to soften and the continued domestic tightening from slowing credit growth and a weakening housing market should continue to take their toll.”
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