Maybank FX Flash: AUD - 7 Jul 2015

AUD: Tracks the Iron Ore More than RBA

§  RBA left cash target rate unchanged at 2.0%. Explicit easing bias is still left out of the statement though RBA wasted no opportunity to jawbone as they expect further depreciation of AUD to be both likely and necessary.

§  Despite our view that 2.00% could very well be the bottom, AUD has room to head lower given the fact that AUD has not completed its adjustment to Australia’s terms of trade which is still on the decline. Other factors that weigh include the fall in real yields of AUD-denominated assets as well as less than robust fundamentals at home.

§  The strong underpinnings of AUD bears at this point could also be the reason for any squeeze in the currency.  Plainly put, the current sell off in prices of iron ore and copper could see some correction. Therefore, there could be better levels to enter a short trade. With RBA unlikely to move for the rest of the year and sporadic upward corrections in commodity prices, there remains some opportunity to sell on rallies. Taking into considerations recent volatility, our AUD forecasts for 3Q is shifted to 0.72 and 0.74 for 4Q. Meanwhile, AUD/SGD may see parity anytime now and we expect this cross to drift towards the 0.98-level in 3Q.