An in brief summary from Nordea's latest comments on the Australian dollar, the RBA and the economy:
AUD performance has been better than we expected at the beginning of the year, driven primarily by
- i) less trade pessimism
- and ii) the distant sound of a cooling USD paper shredder
- Chair Powell did little to downplay those early hopes of a QT-reversal with his U-turn this week, but even in a scenario when Fed stops QT by October, we don't think levels above 0.73-0.74 are warranted in AUD/USD
Domestic factors still stink in Australia
- house prices, vehicle sales and personal credit growth are showing almost recessionary signs
- Not since 2008 have these three factors been this pessimistic at the same time
- NAB Business Indicator ... A drop of more than 8 index-points … the index could go as low as -10 by the summer
Usually commodity trends are deemed to have the largest explanatory power on AUD trends, but what if the NAB Business Indicator drops to -10 by June? Then it would spell a lot of trouble for AUD, even if we are to see more benign global trends.
vehicle sales tend to lead the development in the unemployment rate
- Could the unemployment rate be 0.5-1 index point higher by summer? We tend to think so, and this will be a massive downside scenario to RBAs optimistic unemployment projection (they expect a continued downtrend in the unemployment rate)
It is probably too early to expect RBA to turn-around and hint of easing, due to the lagged nature of their reaction function, why a little patience in our short AUD view is probably needed, also due to Powells U-turn.
We though stick to the story that RBA is more likely to cut than hike next.
(bolding mine)
