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19 Mar 2014
Flash: A trip down under, sighting support for AUD - BAML
FXStreet (Guatemala) - Strategists at Bank of America Merrill Lynch explained that they spent the last week in Australia and by far, the biggest topic of discussion was the AUD's resilience amid the collapse in iron ore prices and weak China data during the week.
Key Quotes:
“Interestingly, the constructive price action meant that while the modal consensus remained moderately bearish AUD, there were a non-trivial number of domestic investors that expected it to stay above 0.90 versus the USD over the coming year”.
“While we are certainly in the camp that the AUD will remain relatively well supported in 2014 (but face a significant decline thereafter), we believe it is important to disentangle the reasons for its resilience so far - specifically to distinguish fact from fiction and understand whether the factors are likely to be temporary or permanent”.
“In particular, we believe that investors should closely track Australia's balance of payments. This interesting, and perhaps worrying, chart shows that Australia's gradually improving current account deficit was disproportionately financed by capital inflows into the mining sector and domestic government bonds in 2013. Excluding these capital inflows, Australia has effectively been running a capital account deficit since 2011”.
“Therefore, the question of how long the AUD stays resilient partly rests on when these capital inflows to Australia will dissipate”.
Key Quotes:
“Interestingly, the constructive price action meant that while the modal consensus remained moderately bearish AUD, there were a non-trivial number of domestic investors that expected it to stay above 0.90 versus the USD over the coming year”.
“While we are certainly in the camp that the AUD will remain relatively well supported in 2014 (but face a significant decline thereafter), we believe it is important to disentangle the reasons for its resilience so far - specifically to distinguish fact from fiction and understand whether the factors are likely to be temporary or permanent”.
“In particular, we believe that investors should closely track Australia's balance of payments. This interesting, and perhaps worrying, chart shows that Australia's gradually improving current account deficit was disproportionately financed by capital inflows into the mining sector and domestic government bonds in 2013. Excluding these capital inflows, Australia has effectively been running a capital account deficit since 2011”.
“Therefore, the question of how long the AUD stays resilient partly rests on when these capital inflows to Australia will dissipate”.