Morgan Stanley Research says they have turned to a bearish view on the Australian dollar.
- We turn bearish on AUD/USD outright and recommend short positions as we believe the USD rally is starting to broaden out now that we are likely entering Regime 3 of our four-regime USD framework.
- AUD/USD is likely to fall in Regime 3 regardless of whether equities rise or fall, though its declines would be more pronounced in a risk-off environment
- We think hawkish expectations for the July RBA meeting (a top-up in QE but a failure to roll the YCC bond) is increasingly in the price, suggesting risk/reward is increasingly favouring a dovish outcome, not a hawkish one
I am not up to speed on MS’ regime USD framework. Sounds impressive though.
The Reserve Bank of Australia meeting is on July 6.