Bearish on Canadian, Australian Dollars, Neutral New Zealand Dollar: Morgan Stanley
- Written by: Gary Howes
Content provided by eFXnews.
The commodity dollar bloc is forecast to struggle this week by analyst Charles Rubenfeld at Morgan Stanley who writes:
CAD: Fade CAD Strength. Bearish.
Despite recent price action, we maintain our bearish view on CAD as we believe the most recent BoC meeting was not as hawkish as the market took it to be, and expect further economic weakness will cause markets to price a higher chance of rate cuts.
The BoC did not have a large shift in tone, but some dovish changes on capex and the wildfires open the door for a larger shift at the July meeting (which is accompanied by an MPR).
Canada's rotation away from the resource sector is in doubt, with April's trade data showing little rebound after a sharp reversal of export growth in the last few months.
Last week's poor GDP data print points to a decelerating economy and we expect the BoC may shift its tone at the upcoming MPR in July.
AUD: Selling AUD Rallies. Bearish.
We remain bearish AUD and look to sell AUD rallies as we expect RBA easing to push AUD lower.
The RBA was hawkish this week by failing to include an explicit easing bias in its statement, which implies easing in July is almost certainly off the table.
However, we still believe the RBA will eventually need to react to the worrying inflation trend and still vulnerable external accounts and our economists are now expecting another 75bp of rate cuts.
House price growth is the key risk here; recent acceleration has given the RBA pause, but we still believe the trend will reverse and see further macro-prudential regulation as possible if it does not.
NZD: Scope for Further Appreciation. Neutral.
We no longer like holding short NZD positions and believe it could even extend its appreciation in coming weeks.
The RBNZ's surprised to the hawkish side yesterday as it upgraded its inflation forecasts and sounded more upbeat about consumption growth.
It also pointed to signs of reaccelerating house price growth which, according to the MPS, could lead to rate hikes in the coming quarters if it continues.
However, we do note that the RBNZ expects to cut rates by 150bps in the scenario of no depreciation of NZD (as opposed to the 3% expected depreciation).
With the TWI already trading above levels assumed in the "flat TWI" scenario, there is risk of rate cuts down the line to cause currency depreciation.