AUD: Trading on a sticky wicket - Westpac

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 2, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
    Likes Received:
    FXStreet (Delhi) – Rob Rennie, Research Analyst at Westpac, expects that the A$ would become increasingly sticky around the 0.70 level and this week's balance of payments tended to back up these views, though I am less confident that we will see the same 'stickiness' into 2016.

    Key Quotes

    “There have been a number of factors driving this view.

    • A rising pipeline of foreign companies merging with or acquiring Australian companies through the year, and a number of significant deals set to complete in the months ahead.
    • Domestic equity issuance tends to drive foreign demand, and this year has been the best year for equity issuance since 2009.
    • EUR funded carry trades will likely have become an important source of demand for the A$.
    • Yield related demand should also have improved as ACGBs have underperformed.
    • Finally, speculative shorts covering positions will also have been a source of demand.
    • This week's balance of payments tended to back up my views. I suspect the data may see a bit of catch up to reflect the size of the equity inflow.

    However, while my 'sticky' argument appears to have worked well for the A$ through Q3 and will probably continue into Q4, I am less confident that we will see the same into 2016. The deterioration in the current account, the fact that capital flows are becoming more speculative and that the A$ will become much less attractive north of 0.7350/ 0.7400 all argue this point. Thus I remain happy with our view that the A$ will head towards and eventually through 0.70 as we move into 2016.”
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