Outlook AUD/USD -Following yesterdays RBA comments regarding the possible economic imbalances created by a strong AUD, greater currency weakness might have been expected. So far however only a mild negative AUD reaction (eg, AUD/USD cross falling to 0.9482 at the time of writing) has been witnessed. Short-term interest rate differentials help explain this muted downside reaction. Using the 3 month FRA spread as a guide, a widening differential to the US (driven largely by the Fed September policy surprise) has benefitted high yield currencies including AUD. -However an additional reason for AUD resilience is improving Chinese data. Stronger sentiment signals, including leading indicators and PMIs, have recently been backed up by an improved Chinese trade performance. Should this trade improvement persist through Q1 2014, a bulk exports led (ie, Iron Ore and Coal) rise in Australias terms of trade could encourage renewed foreign investment supporting AUD. Before then, we maintain a constructive short-term AUD view, believing sellers in the past 24 hours could be forced to capitulate on their post-RBA positions. ( Quotes from Credit Agricole CIB)
Posted on: Wed, 06 Nov 2013 12:40:15 +0000
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