The Aussie is back above 76 cents this morning as another iron ore convulsion shudders through markets. Here is Morgan Stanley on why you should fade the move:
Our FX Strategy Team has recently published an update in which they have entered into a short-term trade recommendation to sell rallies in the AUD/USD with a tactical target of 70c , while reiterating their structural bearish view of 62c by 4Q16.
Supporting this tactical view, our Commodity Strategy Team sees iron ore prices to fall to US$30/T by 4Q16, as the reality of a structural Chinese demand deficit weighs on the YTD seasonally-driven rally.
Domestically, incrementally disappointing data for 1Q16 (retail sales, trade balance, building approvals and private capex) in our view have likely put further pressure on the RBA to cut, who appear increasingly less comfortable with a level of the AUD/USD above 75c.
Catalysts could be this week: It’s a big week of data for Australia with business confidence,consumer confidence and labour force data all due out. Within the confidence gauges we will look to what have been softening labour expectation trends in recent surveys and for the employment release we are well below consensus jobs growth of +6K vs consensus at +17K. In short,a weak set of numbers will challenge the current A$ level.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
