National Australia Bank have left their forecasts on the Australian dollar unchanged today
- AUD within a cent of our 0.75 end-2017 forecast
- Forecasts unchanged (AUD/USD ending Q3 2017 at 0.78 (spot on!), at 0.75 at the end of this year and to a low of 0.73 in 2018), but AUD/USD seen moving into 0.70-0.75 bucket one side or other of year-end
(in brief) The 4 things worrying NAB:
We are flagging a downside skew of risks to both our short and medium term numbers, for which we'd note the following:
1. The risk of US rates rising above Australian equivalents next year is rising. In fact, it now looks inevitable
- the real questions being how far along the yield curve rates might cross-over, and the market's take on how long they are likely to remain there
- It would not be surprising to see cross-over occur before Christmas, out of the December 12/13 FOMC meeting
2. The use of AUD as a trading proxy for Emerging Market risk - as well as hard commodity prices - is very much in evidence.
- AUD has been moving in lock-step with broader EM FX volatility
- Rightly or wrongly, AUD is still proving itself to be negatively correlated with broader EM FX moves and related risk sentiment, notwithstanding Australia's AAA status and which stands in stark contrast to those EM countries currently driving the overall EM FX indices lower (think Turkey, South Africa)
3. Speculative positioning in AUD remains quite long judging from latest CFTC/IMM data, albeit back from its post-early 2013 highs in late September
4. In contrast to the tight relationship between the AUD and the broader USD movement in the past year or so in particular, AUD/USD has been falling at the same time that USD indices have been falling
