AUD looks vulnerable – Morgan Stanley

AUD/USD touched the lowest since Jan 4 earlier today

The RBA was downbeat on economic and inflation prospects for the Australian dollar in a report today. It fell as low as 0.7061 but has rebounded to 0.7092.

Morgan Stanley says there is scope for further losses.

Declining yield and interest rate differentials stand in contrast with its increasing foreign funding needs. Until now, Australia has bridged this gap by increasing equity-related inflows. That strategy worked in times of bullish risk appetite. But interest rate differentials are smaller and Australian asset valuations are increasingly dependent on foreign flows. As a result, AUD may decline faster than previously when risk appetite diminishes.

They suggest selling AUD/JPY it it hits 78.50 with a stop at 80.00 and target of 74.00. Spot is at 77.80.


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