UK data has surprised positively in recent weeks, but only in the
context that markets were anticipating a contraction in Q3 activity. The
actual results are probably closer to signalling a stalling to zero
growth, still not a great scenario for the externally vulnerable GBP.
We continue to see scope for GBPUSD to push back below 1.30 in the near-term.
AUDUSD declined below 0.75 yesterday, now trading around the 100dma
of 0.7482 and we think a further break lower is likely in the near-term.
The greatest impact from steeper yield curves globally on G10 FX has
thus far come through the risk appetite channel and with global equities
under pressure there is room for the AUD to weaken further. Our BNP Paribas STEER model signals
that a 10% decline in MSCI world corresponds with a 7% decline in the
short-term fair value for AUDUSD. Furthermore, BNP Paribas FX
Positioning Analysis continues to signal the market is net long AUD with
a score of +16, which is close to the largest long position for the
last three years.
We continue to target a break below 0.70 by year-end and recommend downside through a bearish seagull (10-Nov-16 expiry): buy 0.7325 put, sell 0.7950 call, buy 0.8200 call.