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5 Jun 2013
Flash: RBA on board with AUD weakness - BMO Capital Markets
FXstreet.com (Barcelona) - BMO Capital Markets Strategist Greg Anderson notes that with the RBA apparently on board with further AUD weakness, there are really only two things slowing it down.
The first, is continued CNY appreciation, while the other is the general aversion of markets to move too far too fast. He feels that aversion may show up more on crosses than in AUD/USD itself. He writes, “For example, the EUR/AUD cross hit the highest level in 18 months overnight. At some point market participants are likely to want to re-establish long-AUD positions in that pair.” However, while he thinks that AUD may hold a bit of value in AUD/JPY as well as EUR/AUD, he would be reluctant to buy it against the USD. He continues to add, “The Fed may not taper in June, but 2-5 year interest rates in the US are still headed in the opposite direction from AUD-denominated rates and the historical relationship between rate differentials and AUD/USD signal that AUD/USD is significantly overvalued—still. I don’t expect another 8% month in June, but I would not be surprised by another 5-10% decline in AUD/USD by year’s end.”
The first, is continued CNY appreciation, while the other is the general aversion of markets to move too far too fast. He feels that aversion may show up more on crosses than in AUD/USD itself. He writes, “For example, the EUR/AUD cross hit the highest level in 18 months overnight. At some point market participants are likely to want to re-establish long-AUD positions in that pair.” However, while he thinks that AUD may hold a bit of value in AUD/JPY as well as EUR/AUD, he would be reluctant to buy it against the USD. He continues to add, “The Fed may not taper in June, but 2-5 year interest rates in the US are still headed in the opposite direction from AUD-denominated rates and the historical relationship between rate differentials and AUD/USD signal that AUD/USD is significantly overvalued—still. I don’t expect another 8% month in June, but I would not be surprised by another 5-10% decline in AUD/USD by year’s end.”