The world is bearish AUD

The banks are bearish AUD. In quick succession our mates at eFX news have the notes from both Deutsche Bank and BNPP, in who both have the same title, 3 reasons to stay bearish AUD. Maybe they have someone moonlighting for the other.

BNPP are bearish AUD, NZD & CAD and say;

(1) WTI traded to new lows at USD 43/bbl Monday and our Commodity Strategy team expect the decline to extend further, forecasting USD 40/bbl by end q3.

(2) With US nominal front-end yields pushing higher as the market increases pricing for Fed tightening, while at the same time oil is declining, US real yields are rising to the highest level since March.

(3) Domestic data could highlight that commodity bloc central bank easing is underpriced: we think Australia's Q2 CPI data will surprise to the downside, paving the way for a 25bp rate cut at the 2 August meeting. The market already prices two full RBNZ rate cuts and this might struggle to increase, but with no easing priced in Canada, there's plenty of room for expectations to turn more dovish on the BoC.

Deutsche Bank have their 3 reasons;

Ahead of this week's inflation data, there are three main reasons to stay short AUD, whether against an equally weighted G3 basket or just against EUR, as we recommended last week.

First, an August rate cut still looks underpriced at 60%. Our economists expect core inflation for Q2 at 0.4% q/q and 1.5% y/y. While this is consensus, we believe the RBA's reaction to such a print will be more dovish than market pricing implies.

Second, after widening in June and early July, the 10Y yield spread to the US has narrowed again to 35bps, implying bond inflows will cease based on the historical relationship.

Third, positioning and valuation still favour shorts. Positioning data from last week's IMM report, which captures the post-RBA minutes selloff, still show a large extension in net AUD longs. That position is at risk of a rapid reversal if the RBA displays greater urgency in easing than the market expects, especially since longs are concentrated in the leveraged community seeking short-term carry rather than value.

AUDUSD is in a definite up channel and I'd be less inclined to short it here, though 75.40/50 has shown itself as resistance once again.

AUDUSD daily chart

If you agree with the analysis above, yet again the FOMC may give you some better levels to short or add to existing positions. I should add that of course, we've got tonight's CPI data to add some fireworks first.

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