Morgan Stanley has upgraded its AUD/USD forecast – now looking for parity by year-end. What do you think of their reasoning?

The latest research piece by Morgan Stanley says:

• It has upgraded its AUD/USD to looking for parity to the US by the end of 2014, and then for the AUD to move lower into 2015

For the move higher, MS cites:

• “The main driver of our bullish stance is our expectation that global demand for high-yielding AAA paper will result in further strong inflows to Australia. And with gross issuance around AUD 5.5 billion a month, there’s plenty of fresh debt for global investors to buy”
• “We see this as being achievable despite further declines (now mostly priced in due to lags between spot and achieved prices) in the terms of trade. The exogenous factor which makes this possible is a once-in-a-generation increase in export volumes”

Then, for the fall into 2015, they cite:

• “Despite the RBA’s reluctance to ease from 2.5%, … look for an eventual shift towards an easing bias (partly due to the stronger AUD), which may cause this peak and decline in AUD once more”