4 Factors Why Bearish AUD Trend Still In Place - Credit Suisse
Despite recent oscillation, the bearish AUD trend remains in place, says Credit Suisse.
While acknowledging that the pick-up in oil volatility and only minor forecast downgrades in last week’s Monetary Policy Report have taken some of the steam out of the most recent AUDUSD sell-off, CS sees a number of factors reinforcing its 0.72 12m forecast.
1- RBA terminal rate around 1.75%:
"The RBA acknowledged that their MPR forecasts were “conditioned on the assumption that the cash rate moves broadly in line with market pricing as of the time of writing.” While such a statement is no guarantee of future rate cuts, it does imply a terminal rate around 1.75%, well below the current 2.25% policy rate. With the market only priced for 10bp in cuts for the March meeting and 35bp in cuts over the next 12 months, we think there is room for dovish expectations to build." CS projects.
2- Aggressive LNG forecasts moderating:
"Regarding the RBA’s decision to cut their growth forecasts, the committee noted “LNG production is likely to ramp up a bit more gradually than earlier expected. Lower export prices are expected to dampen the growth of incomes and activity.” This is a theme that we highlighted in Diving into the LNG market and one that we expect increasingly become a headwind for the AUD," CS clarifies.
3- Chinese commodity imports slowing:
"China’s January trade balance came in at a staggering $60bn earlier this week, the highest reading on record. However, unlike previous cycles of trade balance expansions in which both exports and imports saw positive growth, the distinctive feature of the current phase is the continued decline in imports. Imports fell nearly 20% y/y in January, driven by declines in commodity imports (both in price and volume terms)," CS argues.
4- Political uncertainty on the rise:
"Prime Minister Abbott’s leadership has increasingly come into question in recent weeks, highlighted by declining poll numbers and Monday’s no-confidence vote. While the motion to replace Abbott was ultimately rejected 61-39 (52 votes needed) and is unlikely to have a meaningful near-term impact on AUD, it could bring Australia’s declining fiscal situation and AAA credit rating further into the limelight – as Abbott is likely to proceed less aggressively on balancing the budget," CS adds.
