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24 Feb 2015
Stay short AUD through EUR/AUD – JPM
FXStreet (Barcelona) - The J.P.Morgan Team shares the setup for trading AUD, maintaining a bearish outlook on the antipodean.
Key Quotes
“We continue to find value in being short AUD given our outlook on commodity prices and the outlook on the RBA. The RBA has expressed a desire to weaken the currency, but that is unlikely to happen materially if it does not deliver rate cuts in the context of the rest of the world which is engaging in aggressive easing.”
“Our Antipodean strategists think that the RBA will thus deliver a total of 50bp easing in the 1H with a high likelihood that the next rate cut will be delivered in March. The market is currently pricing in only a 50% chance of a rate cut in March and in addition, a terminal cash rate of 2% appears too conservative especially given the decline in terms of trade and slowing trend growth in China."
“Finally, this week Australia’s sovereign ratings also garnered some attention with news articles highlighting that S&P’s AAA rating could be at risk if the 30% Commonwealth Government debt/GDP ratio were to be breached (current ratio is 20%). While this is not imminent and is likely to be a slow burn issue, on the margin it is AUD-negative since it limits the magnitude of stimulus fiscal policy can deliver thus raising the onus on monetary policy.”
“Stay long EUR/AUD with stop at 1.4214. Marked at -0.48%.”
Key Quotes
“We continue to find value in being short AUD given our outlook on commodity prices and the outlook on the RBA. The RBA has expressed a desire to weaken the currency, but that is unlikely to happen materially if it does not deliver rate cuts in the context of the rest of the world which is engaging in aggressive easing.”
“Our Antipodean strategists think that the RBA will thus deliver a total of 50bp easing in the 1H with a high likelihood that the next rate cut will be delivered in March. The market is currently pricing in only a 50% chance of a rate cut in March and in addition, a terminal cash rate of 2% appears too conservative especially given the decline in terms of trade and slowing trend growth in China."
“Finally, this week Australia’s sovereign ratings also garnered some attention with news articles highlighting that S&P’s AAA rating could be at risk if the 30% Commonwealth Government debt/GDP ratio were to be breached (current ratio is 20%). While this is not imminent and is likely to be a slow burn issue, on the margin it is AUD-negative since it limits the magnitude of stimulus fiscal policy can deliver thus raising the onus on monetary policy.”
“Stay long EUR/AUD with stop at 1.4214. Marked at -0.48%.”