- ANZ has a bearish bias towards the AUD, despite a 9% fall since the start of the year.
- The bank says the Aussie won’t find support from the domestic economy, which leaves it at the mercy of the global risk environment.
Recent falls in the Australian dollar are unlikely to reverse course anytime soon, according to ANZ’s Giulia Specchia.
Specchia said the domestic economic picture is unfavourable for the Aussie, amid increasing global uncertainty from trade war threats and tightening liquidity.
“To be fair, the AUD lacks a story of solid domestic fundamentals to latch onto,” Specchia said.
She noted that while recent economic data points — such as a positive print for Q1 GDP — have been solid, the current prospects for wage growth and inflation remain low.
In that sense, “it is fairly uninspiring from the perspective of an RBA rate hike”, she said.
“In addition, uncertainties around the housing market and what a deceleration in prices may mean for wealth and spending are adding to downside risks for the AUD.”
More trade fears drove another round of risk-off sentiment in global markets overnight, which saw the AUD briefly fall to the lowest level since January 2017 before some buyers stepped in.
At the same time, the US dollar index is now just shy of its 2018 peak, and the AUD has now lost more than 9% against the greenback since late January.
With the US Fed still on track to raise rates at least once more this year, Specchia said the Aussie will be unable to rely on yield support as the RBA remains stuck in neutral.
And she added that as a small, open market, Australia’s currency is particularly sensitive to the ongoing escalation in global trade tensions.
While on the subject of trade, Specchia said strong commodity prices have helped provide support for the Aussie by boosting terms of trade in the first half of this year, “but this channel is steadying”.
“We believe that, rather than sparking a rally, commodity prices will put a floor beneath any AUD decline.”
So in summary, there are no key no support catalysts from the domestic rates environment, global trade and commodity prices.
Which means the AUD — often viewed as a proxy for global risk appetite — remains at the mercy of macro risk-factors.
And amid the withdrawal of global liquidity and continued concerns about the health of China’s financial system, “that remains too fragile to bank on any sustained risk-relief rally”, Specchia said.
“We continue to keep a mild bearish bias for the AUD,” Specchia said.