Goldman: Australian dollar to 75 cents

See the latest Australian dollar analysis here:

Macro Morning

Via Goldman:

AUD/USD has had a round trip since the G20 meeting last weekend, initially rallying on the US-China ‘truce’ before falling on weaker GDP data and perceived dovishness from the RBA Deputy Governor Debelle.

In our view, Deputy Governor Debelle’s comment that although the next move is likely a hike “there is still scope for further reductions in the policy rate” should be taken in the context of a speech dedicated to the policy response to the 2008 financial crisis rather than a signal on future policy direction.

Further, at least some of the weakness in the GDP accounts should prove temporary and growth for 2019 should remain above trend.

With a partial cut now priced into the curve, we think the risk-reward is favorable for AUD higher on a stabilization of both China data and CNY.

I can see the AUD getting to 75 cents next year as the Fed stalls its hikes and if China stimulates aggressively.

But Goldman’s rationale is rubbish. The RBA is in a panic as it has lost control of rates and it will be forced to cut next year. Goldman has been WAY too hawkish on the RBA for years.

So, Goldman could be right for the wrong reasons which suggests it could also, very plausibly, be wrong.

David Llewellyn-Smith
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  1. It’s gonna be wrong. Why? Because US rate expectations have collapsed and even as they did so, AUD did not benefit. Meanwhile, RBA is going to have to do something about it’s domestic liquidity situation and China isn’t going to stimulate enough to support commodities and as they crash the Australian ToT will fall. AUD going to AUD/0.65