AUD to USD Pair a ‘Sell in May’ - Barclays
- Written by: Gary Howes
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Barclays recommend selling the Australian dollar and buying US dollars over coming days and weeks. In a note to clients on the matter, Barclays write:
The USD has turned around, as the 'Sell in May' seasonal phenomenon is seemingly unfolding in Asia.
High frequency data are showing signs of exhaustion of portfolio inflows into Asian markets , with Taiwan and Indonesia already seeing a pickup in outflows.
With the deterioration in risk appetite, high beta currencies such as the AUD, KRW and MYR have underperformed.
Specifically, our seasonal analysis shows that the AUD has the most bearish month of the year relative to USD in May.
At the same time, increased market expectation of another RBA interest rate cut is further adding pressures on the AUD, after the RBA lowered its 2016 underlying inflation forecast to 1-2% from 2-3%.
We see more downside potential for AUD ahead, especially with China upcoming data likely to confirm moderating activity in April.
Indeed, China’s macro data will take centre stage, with implications for global risk sentiment and the Antipodean and EM Asian currencies.
We expect China’s data to confirm activity moderation in April, in line with the signals from the manufacturing and services PMI reports (official and Caixin series).
China's export growth moderated in April after a bump in March, and we think money supply and new loans (expected release 10-15 May) will similarly slow after a sharp rise in March (Barclays: CNY 1200bn for aggregate financing; last: CNY 2340bn).
Consensus expectation is for April industrial production to soften as well (Saturday).