Bank of America FX Strategy Research believes that the magnitude of AUD depreciation over the remainder of 2017 could be substantial and primarily driven by demand-driven slowdown in export values.
BofAML’s bearish view on AUD is in line with its economists’ call on China as they continue to believe that cyclical growth momentum has peaked out and will weaken in 2H as the impact of policy tightening kicks in.
“Two indicators that we track in the context of Australia are consistent with this: 1) High frequency steel production rates published three times a month declined through April at a nationwide level, although the growth rate at key factories remains high. 2) Port shipment data from Australia typically provide the timeliest indicator of Australia’s commodity exports and are often released even ahead of China’s import data. Iron ore shipment volumes from Port Hedland remain high but the growth rate declined in April,” BofAML argues.
All in, BofAML’s base case is that as China slowdowns becomes more apparent, AUD/USD will test 0.70 before year-end.
AUD/USD is trading circa 0.7430 as of writing.
Source: Bank of America Merrill Lynch Rates and Currencies Research
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