JP Morgan strategists say to sell the AUD due to the risks from China’s “credit-tapering”. they expect slower growth in China, heightened risk of a credit crunch. NZd is not at risk so much as their exports to China are more resilient.
Its not really anything we don’t know already, but a useful summary of the current risks nevertheless.
More at FXStreet, key points;
- “China is undergoing a credit tapering as the authorities attempt to control the leverage boom post-Lehman which has boosted credit-to-GDP to a risky level of over 180% (and still climbing).”
- “Slower growth is almost inescapable consequence of this process, and a credit crunch more a risk scenario which acknowledges the difficulties of managing this deleveraging smoothly in each quarter.”
- “Given the possibility of worse growth outcomes than the official target of 7.5% or the consensus view of roughly 7%, worthwhile hedges are the obvious ones: shorting currencies with significant trade exposure to China, particularly if rising US rates already lend an upward bias to the US dollar versus most currencies.”
- “Selling AUD and South East Asia are the obvious choices. Selling NZD is not so obvious, since their exports to China (dairy) may prove more resilient to a slowdown in industrial activity.”
