BAML: Forget the bearish calls, the risk-reward for selling the Australian dollar isn't attractive at these levels

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While there have been some pretty bold calls lately calling for the Australian dollar to plummet to as low as 50 cents, there are some analysts out there who feel that selling the currency at its present level isn’t an attractive proposition, at least in the short term.

One such analyst is Adarsh Sinha, head of Asia Pacific G10 foreign exchange strategy at Bank of America-Merrill Lynch, who believes that the risk-reward of selling at current levels is poor, particularly given his view that the RBA will not cut interest rates further.

Here’s Sinha.

“The RBA appears relatively comfortable with rates where they are. Our economists expect that that in the short term it will continue to scan the environment for any downside risks, but the hurdle for another cut is high. There has certainly been no catalyst in the data flow over the past month which would prompt the RBA to consider cutting rates at the moment. And our base case remains that the Bank’s comfort in keeping rates unchanged should gradually grow over time, allowing it to leave rates on hold for an extended period. Drivers other than rate expectations, such as weak commodity export prices and a decline in capital inflows to the resource sector, will still keep downward pressure on AUD”.

While Sinha remains a medium-term AUD bear – in his opinion the fundamental “big picture” remains negative for the currency – he’s not calling for rapid decline in the currency over the years ahead.

He’s looking for the AUD/USD to fall to 73 cents this year, just 0.7% below its current level, before declining to 68 cents at the end of 2016. He adds “there are clearly downside risks to this forecast profile but we leave it unchanged for now as we await more clarity on Fed lift-off and the RBA’s reaction function”.

This morning the AUD/USD currently sits at .7353.

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