AUD After Weak Q1 CPI Inflation - Nomura
Charles St-Arnaud, Research Analyst at Nomura, notes that the Australian
CPI inflation came in weaker than expected, showing moderating
inflation, especially domestically.
Key Quotes
“This
has increased the likelihood that the Reserve Bank of Australia (RBA)
will cut rates in the near future with the market now pricing in about a
50% chance of a cut at next week’s policy meeting. As a result, AUD has
depreciated significantly so far today (about 1.8%).
The high
likelihood of a rate cut next week will mean that AUD is likely to
continue to remain on the back foot going into the RBA meeting. If the
RBA cuts rates, AUD is likely to depreciate. However, if it stays on
hold and there are signs that the fiscal stimulus will be sufficient to
prevent a rate cut, AUD may rally significantly.
In the medium
term, we continue to view that AUD is more likely to depreciate, as iron
prices are at risk of a correction. This means that, if the RBA stays
on hold next week and signals that rates are likely to remain unchanged,
we would recommend investors use the bounce higher in AUD as a better
entry point for entering a short AUD position.”
