AUD/USD Climb not yet Done say Credit Agricole and Morgan Stanley, Whilst OUB Are More Cautious
USD is strong again with AUD and NZD bearing the brunt of the move but all G10 currencies weaker against USD. Diminishing political uncertainty is leading to greater monetary policy certainty.
The probability of a Fed hike by year-end hit a new four-month high of 75% as the probability of a Trump presidency is at a new low of just 17% (35% in late September) after House Speaker Ryan said he would no longer defend Trump.
The big story for AUD/USD at present therefore is the turn higher in bond yields.
10year Treasuries were quoted at 1.76% in Asia trade on 11th October - their highest levels since early June.
This will naturally pull the USD higher alongside.
US data continues to show expansion but some analysts believe it's the turn higher in inflation expectations and general bond investor fatigue which is driving this very gentle upward incline which is in turn pulling the Dollar higher alongside.
Can this trend continue or will the Australian Dollar be able to assert itself once more?
Institutional Researchers say AUD Strength not Yet Over
The Aussie is likely to continue its uptrend until October 26 when the next major piece of data which could affect the currency is released, Q3 CPI, according to analysts at Credit Agricole.
Until then the main drivers are likely to come from offshore sources.
“The AUD will be driven by events offshore and investor expectations for how much longer the ultra-loose monetary policy by the big three central banks can persist.”
The next financial stability report is likely to garner more interest than usual for its insight into the Australian property market.
Credit Agricole expect it to show a market still on the rise, which should boost the Aussie further as it will reduce the chances of the Reserve Bank of
Australia (RBA) cutting rates, since a cut would risk heating up the market even more by lowering borrowing costs.
Morgan Stanley are even more bullish for AUD, basing their opinion partly on the better-than-expected Retail Sales and Trade Data released last week.
The figures were a positive early sign for growth in Q3.
Recent positive data and a lack of will on the part of the new Reserve Bank of Australia (RBA) governor, Philip Lowe, to cut interest rates also support the Aussie, claim Morgan Stanley.
“With AUDUSD at 0.76, it still has room to go higher before the RBA becomes too worried about overvaluation,” they conclude.
Singapore-based OUB, on the other hand, are more neutral about the outlook for AUD, citing technical problems, such as the slowdown in momentum, and low daily close.
Overall their view is that the pair will remain rangebound.
“We continue to hold the view that the current movement is part of a broader consolidation phase within a 0.7750/0.7710 range,” said OUB in their research note.