Our FX strategists expect the dollar-bloc commodity currencies to remain under pressure versus the greenback. China holds the key for the commodity exporting currencies. Despite the soaring stock market, thus far there are scant signs that the Chinese economy is accelerating.
- Particularly important for the Australian dollar, iron ore prices are still falling. This means that Australia’s terms of trade and currency have yet to bottom. Additional downside for the Australian dollar comes from the prospect of additional RBA rate cuts. Although the central bank held policy steady last week, it maintained its easing bias. Our RBA Monitor remains in “easy money required” territory, warning that more rates cuts are ahead.
- We also see further downside risks in the Canadian dollar. Our Commodity & Energy Strategy service remains bearish on crude oil. Downside risks to growth could necessitate further rate cuts. Last week’s Business Outlook Survey was broadly weak with future sales growth, employment and investment posting declines.
- The kiwi ranks the best among the three dollar-bloc currencies. NZ’s economy and commodity basket, which is biased towards dairy products, are much more resilient. Unlike the Australian dollar, which is still overvalued relative to its terms of trade, the kiwi is closer to fair value. Also, the RBNZ does not have an easing bias. Nevertheless, it will be difficult for the NZ dollar to decouple completely from the other commodity currencies.
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