7 Sep 2015
Prospects for Aussie remain bearish – BAML
FXStreet (Edinburgh) - In the opinion of Analyst Adarsh Sinha at BAML, the outlook on AUD remains parked on the negative side.
Key Quotes
“AUD has displayed remarkable resilience to the RMB depreciation given its significant export exposure to China. Positioning at least partly explains this, as well as the RBA moving to a more neutral stance on the policy rate and FX. Another key factor behind the resilience is despite the pessimism around China and commodities, steel prices have actually rebounded over this period”.
“The RBA appears relatively comfortable with rates where they are. Our economists expect that that in the short term it will continue to scan the environment for any downside risks, but the hurdle for another cut is high. There has certainly been no catalyst in the data flow over the past month which would prompt the RBA to consider cutting rates at the moment”.
“The fundamental "big picture" remains negative for the AUD and we believe the exchange rate needs to move further below “fair value” if it is to provide any degree of support to the economy. The recent significant developments in China suggest this is likely and have led us to revise down our forecasts – we now expect AUD/USD to end 2015 at 0.69 (previously 0.72) and 2016 at 0.65 (previously 0.68)”.
Key Quotes
“AUD has displayed remarkable resilience to the RMB depreciation given its significant export exposure to China. Positioning at least partly explains this, as well as the RBA moving to a more neutral stance on the policy rate and FX. Another key factor behind the resilience is despite the pessimism around China and commodities, steel prices have actually rebounded over this period”.
“The RBA appears relatively comfortable with rates where they are. Our economists expect that that in the short term it will continue to scan the environment for any downside risks, but the hurdle for another cut is high. There has certainly been no catalyst in the data flow over the past month which would prompt the RBA to consider cutting rates at the moment”.
“The fundamental "big picture" remains negative for the AUD and we believe the exchange rate needs to move further below “fair value” if it is to provide any degree of support to the economy. The recent significant developments in China suggest this is likely and have led us to revise down our forecasts – we now expect AUD/USD to end 2015 at 0.69 (previously 0.72) and 2016 at 0.65 (previously 0.68)”.