I posted earlier on the call from BOM that the worst may be over for the Australian dollar:
Nordea are looking for a higher AUD, this in brief:
- domestically it looks really bad
- Calls for imminent rate cuts … almost all IBs now project 2 or 3 cuts from the RBA this year ... the market prices almost two full cuts for the remainder of 2019
- over the next 6 months … unemployment could even pick up by as much as 1 ppt
So why on earth do we suggest buying AUD anyway? Due to nondomestic factors.
- weaker CPI trend in Australia is mostly a lagged consequence of the tighter financial conditions in Asia in 2018. The softer financial conditions seen throughout 2019 will likely soon spill-over to a re-increase in the Australian CPI.... We bet that the Q2 inflation report will be more upbeat than the Q1 report that we received last week.
- The highly certain influx of USD liquidity in May is another reason to expect AUD/USD to bounce higher with the 2019 range.
- Accordingly, we even see a decent risk/reward of a hawkish re-pricing of the RBA compared to the current gloomy outlook.
- Yes, the RBA will likely cut once or twice this year, but that is already in the price. The best risk/ reward is likely to pay the front now or else buy the AUD versus either NZD or USD.
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Nice work … I'd be wary of getting too gung-ho long AUD right now though. Could be wrong.
