Thursday, November 12, 2015

AUD: Lot of struggle ahead - Westpac

FXStreet (Delhi) - Sean Callow, Research Analyst at Westpac, suggests that if the Fed does raise the funds rate in Dec and again in Q1 2016 as we expect, AUD should be among the many currencies struggling against a rising dollar which Fed officials are now making clear they are willing to tolerate.

Key Quotes

“And we continue to wait without reward for evidence of a revival in China’s industrial sector. This week we saw China’s industrial production soften to 5.6% y/y, matching March’s reading as the slowest pace of expansion since Dec 2008. This leaves our base case that AUD/USD slips back below 0.70 in coming weeks.”

“But AUD seems likely to outperform much of the G10 in that time. Pricing for another RBA rate cut is only about 30% by Feb 2015, in the wake of Australia’s stunning Oct labour force data. Employment was reported to have surged 59k and the unemployment rate fell below 6% for only the second time since May 2014. Since a 59k monthly rise in Australian employment is the equivalent of 710k on US payrolls, we suspect some statistical quirks are in play.”

“But even halving the Oct jobs gain would still reinforce the RBA’s view that the labour market is improving. Inflation remains unthreatening but if growth still seems reasonably promising into early 2016, pricing for an RBA rate cut should be reduced further. Long AUD/NZD should be a particularly popular trade into the RBNZ’s 10 Dec meeting.”
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