Synopsis:

Credit Agricole maintains a bullish stance on the Australian dollar (AUD) but expresses concerns about its recent rally being overextended.

Key Points:

• The RBA's hawkish stance relative to other G10 central banks and China's stimulus efforts have contributed to a rise in iron ore prices, surpassing USD 100 per tonne.
• Despite this, Credit Agricole notes that the latest Chinese stimulus lacks sufficient fiscal spending to provide a sustained economic boost, as private sector credit demand remains low.
• Recent China PMI data indicates ongoing struggles in both manufacturing and services sectors.
• The market may be overly aggressive in pricing Fed rate cuts, which could lead to a re-pricing of expectations that may weigh on the AUD.

Outlook:

• Key economic data, including the US ISM and labor market reports, will be closely monitored, along with early indications of Golden Week holiday spending in China, starting October 1.

Conclusion:

While Credit Agricole remains bullish on the AUD, they caution that the currency's recent gains may be unsustainable, urging vigilance as market dynamics evolve.