MS: Australian dollar going to 62 cents

“Indeed, there was some market frustration with the recent rhetoric from the RBA that in one breath backs hard for a lower currency but then backs away from the easing bias that would have helped achieve this outcome,” Morgan Stanley analysts, led by Chris Nicol, write in a note to clients.

“We are more sanguine on this front, and like other major central banks, we view the recent RBA rhetoric and positioning as one that seeks greater flexibility linked to the overarching concept of data dependancy.”

Morgan Stanley expects soft data to eventually force the RBA’s hand, taking the cash rate down to 1.75 per cent in the fourth quarter, from 2 per cent currently.

“The key short-term drivers of the US dollar will be growth and front-end yield differentials, which we expect to become even clearer with our team forecasting a strong retail sales figure on Thursday, adding to momentum from payrolls, housing data and the ISM.”

One doesn’t need the hocus pocus of Elliot Wave theory. As always, iron ore is the key. When it breaks again so will rates and the dollar.

I still expect the ultimate bottom below 50 cents when the next global shock takes the peso full circle following the above.