28 Apr 2015
AUD/USD appreciation a good opportunity for building shorts – Nomura
FXStreet (Barcelona) - Charles St-Arnaud, Research Analyst at Nomura, sees further depreciation ahead for AUD, and further suggests the current appreciation in AUD/USD as a good opportunity for entering into short positions.
Key Quotes
“The continued decline in iron ore prices has continued to push the fair value for AUD lower, despite the pick-up in the prices of both iron ore and coal. Moreover, since the beginning of the year, oil prices have recovered about 13%, leading to further deterioration in the terms-of-trade.”
“Based on this, we estimate that with commodity prices at the current level, AUD/USD fair value is much closer to 0.72 than the current 0.78, suggesting further depreciation will be required to realign the currency with the terms-of-trade.”
“Moreover, if exports continue to underperform, this will lead to weaker growth, taking it further below trend this year. This may actually lead to a need for more rate cuts than currently expected, which could lead to a further decline in AUD/USD.”
“With this in mind, and the expectations that the Federal Reserve will start normalising monetary policy in the second half of 2016, we still expect AUD/USD to continue to depreciate this year and believe that the recent AUD appreciation that has resulted from the rebound in iron ore prices and weaker USD provides better entry levels to the trade.”
Key Quotes
“The continued decline in iron ore prices has continued to push the fair value for AUD lower, despite the pick-up in the prices of both iron ore and coal. Moreover, since the beginning of the year, oil prices have recovered about 13%, leading to further deterioration in the terms-of-trade.”
“Based on this, we estimate that with commodity prices at the current level, AUD/USD fair value is much closer to 0.72 than the current 0.78, suggesting further depreciation will be required to realign the currency with the terms-of-trade.”
“Moreover, if exports continue to underperform, this will lead to weaker growth, taking it further below trend this year. This may actually lead to a need for more rate cuts than currently expected, which could lead to a further decline in AUD/USD.”
“With this in mind, and the expectations that the Federal Reserve will start normalising monetary policy in the second half of 2016, we still expect AUD/USD to continue to depreciate this year and believe that the recent AUD appreciation that has resulted from the rebound in iron ore prices and weaker USD provides better entry levels to the trade.”