Buy the dips says Citi's FX strategy team
Safe haven and yield is two of the reasons Citi thinks that AUDUSD will be trading over 0.8000 in the not too distant future.
Citi say;
"In an environment in which ever easier G4 policy is boosting asset prices and driving investors to seek yield, AUD presents an attractive mix of low political risk, high credit standing and significantly positive yield. Indeed, Australia may represent the best mix of these attributes of any of its peers. Given that valuation for AUD remains far more attractive than was the case in previous years when the currency approached highs near 1.10, we expect the currency to attract heavier inflows as longer-term investors begin to respond to recent market and policy developments.
A marginal decline in interest rates or moderate AUD appreciation is unlikely to change this merits and valuation based calculus. Thus domestic threats to AUD, such as cutting rates from 1.75% to 1.50%, are second tier.
The tactical conclusion is that those looking for the RBA and underlying developments to rein in AUD's performance may be disappointed amid the broader AUD-positive macro backdrop. We are not among those looking for the RBA to ease at its policy meeting this week. We anticipate that the currency will appreciate well above 0.80 vs. the USD."
They add that any dip will provide a more attractive entry point on valuation grounds.
They've got a good point and the way the price action has been behaving, a dip driven by a cut may be fairly quickly reversed. The chances of a cut were lowered after last weeks CPI data but even before that, AUDUSD was pretty buoyant. If they do cut then it could come as more of a surprise and will hit the AUD hard. That might be a good dip to jump on but we'll need to take into account any message from the RBA that comes with it.
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