Morgan Stanley believes that the period of AUD strength is behind us and now expects further losses.
“In addition to the broader strong USD environment, the risks of a cut at the upcoming RBA meeting are rising as inflation undershot in its latest release. Iron ore prices have been coming off as well.
AUD could now catch up with its commodity currency peers, heading back towards the lows,” MS argues.
“The RBA remains dovish, and expectations for a further easing have re-emerged. Our economists have been expecting a further rate cut from the RBA at the November 3 meeting, against initial consensus expectations for unchanged policy.
However, since this week’s miss on the CPI data, easing expectations are building. Australian headline CPI remained at 1.5%Y in Q3 against market expectations for a rebound to 1.7%Y. While the market median is still for unchanged rates at 2.0%, the mean of market estimates has been moving lower, reflecting an increase in easing expectations,” MS add.
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