AUD likely to print fresh highs against the Chinese yuan since 2014 - Westpac

Sean Callow, Research Analyst at Westpac, suggests that AUD seems likely to print fresh highs against the Chinese yuan since 2014 in coming weeks.

Key Quotes

“The Aussie should continue to enjoy support from resilient commodity prices and an optimistic RBA outlook, even as domestic data prints mixed.”

“But the biggest swings in AUD/China in recent months have been during sharp sentiment changes on the US dollar. AUD will remain a much higher beta USD play than the yuan, as seen by AUD underperformance in Nov-Dec 2016 and then outperformance in the early weeks of 2017 as the US dollar fell across the board.”

“We expect both AUD and the yuan to depreciate against USD multi-month, implying AUD/China decline towards 5.15/5.20. But near term, AUD/CNY should probe the 5.30-5.35 area, with the Aussie helped by elevated risk sentiment over both the US and China.”

“It is quite typical for bullish expectations for China’s infrastructure spending to produce AUD/China gains, just as periods of pessimism over China see the Aussie punished.”