RaboBank: Australian dollar headed to 68 cents on China decoupling

See the latest Australian dollar analysis here:

Macro Afternoon

This makes more sense to me than 90 cents:

  • AUD … is worst-placed for a US-China decoupling, the RBA’s Debelle just gave a speech in which he said a lower AUD would be beneficial to support the economy, and that higher public debt levels (which the RBA will support) are not a problem.
  • The RBA’s projections, always too optimistic, are also that it will be three years before rates need to rise again.
  • Ask the BOJ how long it has taken them
  • We see scope for AUD/USD to pullback towards 0.71 on a three-month view and to fall to 0.68 in six months

I’m either less or more aggressive on the timeframe, though, at either six weeks or one year. Either we see risk off hit AUD hard soon and then rebound after northern hemisphere politics clears. Or we see the AUD rally into next year as iron ore stays strong and DXY weakens again.

The China decoupling story will take time to play out as it become apparent that students and tourists are history. It will be disguised in the short term by iron ore staying strong until mid-2021 on the Chinese restocking cycle.

As a principle it is spot on which is why I say that the current bid into the AUD is the one to uss to get your assets offshore.

David Llewellyn-Smith
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