Synopsis:

HSBC observes that AUD/USD is no longer the ideal vehicle for trading China-related themes, with a structural shift favoring AUD strength against other currencies instead. HSBC recommends risk-neutral AUD crosses, particularly against CAD, EUR, GBP, and SEK, as these pairs better reflect the underpriced impact of China’s policy shifts and align with the RBA’s restrictive stance.

Key Points:

• AUD/USD Limitations for China Theme: AUD/USD may no longer effectively capture China’s policy impact, suggesting a shift toward using AUD crosses as a better trade vehicle.

• Preference for AUD Crosses: HSBC favors AUD against a basket of CAD, EUR, GBP, and SEK, viewing these pairs as more responsive to the recent China policy shift that remains underpriced.

• Supportive RBA Stance: With the RBA committed to keeping rates restrictive for longer, HSBC sees further AUD upside, particularly relative to more dovish European central banks.

Conclusion:

HSBC identifies a structural shift in AUD trading, recommending AUD crosses over AUD/USD for those looking to trade China-related themes. A stronger AUD is anticipated, especially against European currencies, supported by the RBA’s stance and China’s underpriced policy shifts.