Synopsis:

Morgan Stanley maintains a bullish stance on AUD/CAD, targeting 0.97 and beyond. The firm sees AUD benefiting from both global and local factors, supported by solid Australian growth and a likely divergence in central bank policies as the RBA holds rates steady, while the BoC moves toward earlier cuts.

Key Points:

• Australian Growth Strength: Recent Australian labor data reflects solid economic momentum, contrasting with the increased slack in Canada’s labor market.
• Diverging Central Bank Policies: Morgan Stanley expects the RBA to keep rates unchanged longer than markets currently expect, potentially until May 2025, while the BoC is likely to pursue more front-loaded rate cuts with a lower terminal rate.
• Global and Local AUD Support: Both global risk appetite and resilient domestic economic indicators are expected to bolster AUD relative to CAD.

Conclusion:

Morgan Stanley maintains a long AUD/CAD position, citing supportive economic fundamentals and a divergence in central bank policies favoring AUD. With the RBA likely holding steady while the BoC moves to cut, AUD/CAD is set to rise, with a target of 0.97 or higher.