The firm argues that the pain train in the aussie and kiwi can go further if the virus outbreak evolves into a global pandemic
According to the firm's head of FX, Daniel Been, the aussie and kiwi may fall towards 0.58 and 0.55 per dollar respectively if news flow on the virus continues to evolve towards becoming a global pandemic.
Adding that risk appetite, based on their in-house measures, have already moved to panic and close to levels consistent with prior large global shocks.
However, their central forecast remains that both the aussie and kiwi are closing in on their lows as positioning in both currencies remains relatively short.
On the flip side, the firm says that if the virus becomes contained in the near-term, a V-shaped recovery looks set to happen. They target the aussie to move towards 0.69 and the kiwi towards 0.65 per dollar in such a scenario.
Again, I'd like to emphasise the need to take all forecasts and views related to the coronavirus with a pinch of salt. It is still too early to tell how this is all going to play out and the severity of its impact but you can always lean on the chart for guidance.
As mentioned in my posts on the aussie and kiwi, this still isn't the time to be catching the falling knife. There's only two things to watch for i.e. change in near-term technicals and change in market sentiment.
Currently, both the above are still not working in favour of either currency as the near-term bias remains more bearish and coronavirus fears continue to engulf the market. As such, the path of least resistance remains lower.
For the case of the aussie, a move towards fresh decade lows doesn't really help the case in trying to pick a bottom. The rout will stop when it stops.
