AUD to outperform CNY – Westpac

Sean Callow, Research Analyst at Westpac, expects the US dollar to lose a little steam over the next month or so, with the FOMC likely to accompany its Dec rate hike with mostly dovish language and a period of broad-based USD decline (though only modest) argues for AUD to outperform CNY.

Key Quotes

“USD/CNY should ease back to 6.85 multi-week or a touch lower, while AUD/USD chops towards 0.76. This would leave AUD/CNY a little higher than current levels, around 5.20. AUD/CNH should be around the same level, maybe a touch higher.”

“The underlying pressure on the yuan is likely to remain, as the pullback in US yields should be limited by the new narrative for the US in 2017 of higher inflation, wider deficits and higher yields. But China has plenty of firepower to keep a lid on USD/CNY and USD/CNH into year end.”

“AUD/USD should find support from resilient (though volatile) commodity prices and decent enough growth prospects for 2017 to keep pricing for another RBA rate cut very modest. AUD remains a higher beta play on USD so whenever the next wave of broad USD gains occurs, AUD/CNY should turn lower as it did in the immediate wake of the US election.”