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5 May 2015
RBA: Cut and AUD jawboning expected - Nomura
FXStreet (Bali) - Charles St-Arnaud, Economist at Nomura, expects a rate cut by the RBA and some currency jawboning to push AUD lower.
Key Quotes
"We believe the RBA is likely to reintroduce some of the language used in late 2014 saying that “the Australian dollar remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices in recent months. This would be a reminder to investors that that RBA views the current move as unwarranted and that the currency is overvalued."
"With this in mind, and the fact that the rate cut is not fully priced in by the market (about a 20bp cut is priced in), we believe that as a result of the rate cut and the comments on the currency, AUD should depreciate after the RBA meeting."
"While AUD/USD has already moved a lot since reaching 0.805 this week, we believe that it has further downside potential and that short AUD/USD makes sense, especially as it seems that a lot of the short AUD positioning has been removed in recent weeks. Moreover, as we have shown in Australia Special Report - The iron ore war: impact on growth and AUD, with signs that Australian exports of iron ore are slowing, leading to weaker growth, AUD should remain under downward pressure."
Key Quotes
"We believe the RBA is likely to reintroduce some of the language used in late 2014 saying that “the Australian dollar remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices in recent months. This would be a reminder to investors that that RBA views the current move as unwarranted and that the currency is overvalued."
"With this in mind, and the fact that the rate cut is not fully priced in by the market (about a 20bp cut is priced in), we believe that as a result of the rate cut and the comments on the currency, AUD should depreciate after the RBA meeting."
"While AUD/USD has already moved a lot since reaching 0.805 this week, we believe that it has further downside potential and that short AUD/USD makes sense, especially as it seems that a lot of the short AUD positioning has been removed in recent weeks. Moreover, as we have shown in Australia Special Report - The iron ore war: impact on growth and AUD, with signs that Australian exports of iron ore are slowing, leading to weaker growth, AUD should remain under downward pressure."