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Mar 06 - 01:24 PM
AUD: Is AUD Still A High-Beta Currency? Does China Matter? - BofAML
First appeared on eFXplus on Mar 06 - 11:15 AM

Bank of America Merrill Lynch Research discusses AUD outlook and considers the broader question of whether AUD is a high beta currency (highly sensitive to global risk) and more specifically whether China still matters for its direction. BofAML argues that AUD is not high-beta currency but China-specific risk still matters.

"There are many reasons for AUD's low beta to global risk than previously, but perhaps the most important is that it has not been a carry currency for some time....As a consequence, Chart-5 shows that the sensitivity of AUD to global risk (as measured by our Global Financial Stress Index) has for the most part been low. 2015-16 stands out as an exception, but that is primarily because China was driving swings in global risk over that period. This is crucial - in fact, if we look at the partial sensitivities to country-specific risk factors, the message is clear: China sentiment still matters for AUD, but US and Europe-driven swings in risk do not," BofAML argues.

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"With China recently signaling more easing to come, watching high frequency indicators of its import impulse for Australia will be important. So far commodity shipment and steel production data paint a neutral impulse, which suggests the bearish domestic narrative will continue to dominate near term. However, a likely recovery in Chinese growth later this year keeps us comfortable with projecting medium-term AUD appreciation," BofAML adds. 

Source:
BofA Merrill Lynch Research/Market Commentary

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