Thursday, September 24, 2015

AUD: Prone to downside, risks elevated due to China - Rabobank

FXStreet (Delhi) - Jane Foley, Research Analyst at Rabobank, suggests that we still see risk that the RBA will cut rates again this cycle to provide insulation to the economic outlook – a view which is supported by signs that the housing market activity may at last be peaking. One factor that could slow the RBA’s trigger finger would be a continued fall in the value of Australia’s effective exchange rate. Either way we continue to see downside risks for AUD/USD towards 0.68 on a 6 mth view.

Key Quotes

“The steep decline in the value of AUD/USD over the past year has helped moderate the pace of plummeting prices of iron ore and coal in local currency terms. Nevertheless, another weak reading today for Chinese manufacturing PMI decline has stressed that the painful adjustment period for miners may yet have further to run.”

“According to a report published by the RBA last week, “recent declines in bulk commodity prices have reduced the growth of household income, company profits and government revenues”. This is largely the result of a significant reduction in Australia’s export revenues.”

“At the height of the commodity boom, the overvalued AUD had subjected Australia’s non-resource linked industries to a nasty bout of Dutch disease. That said, there is not much room for optimism.”

“Comments from RBA Governor Steven’s last week that he is ‘pretty content’ with policy settings suggests there may be no imminent danger of another reduction in interest rates. However, the longer China prints weak economic data, the greater are the risks to the Australian economy.”
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