Two key drivers to continue undermining AUD; What's the trade

Nomura on the Australian dollar

Nomura FX Strategy Research discusses AUD outlook into year-end and thinks that the relative AUD underperformance theme in recent months can continue into 2018.

"There are two overarching drivers that should continue to undermine the AUD: (1) the ongoing monetary policy divergence between the patient RBA and other major central banks; and (2) the bias for a lower Australian terms-of-trade. The combination of moderating growth in China, push for supply-side reforms and deleveraging, and still rising global supply should weigh on Australiancentric commodity prices, such as iron ore.

In line with this view, Nomura recommends staying long EUR/AUD (via options), in light of its positive outlook for the eurozone and flow dynamics and as the ECB continues to normalize policy.

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