Synopsis:

Morgan Stanley maintains a bullish outlook on the Australian dollar (AUD), a neutral stance on the New Zealand dollar (NZD), and a bearish bias on the Canadian dollar (CAD). Their views are driven by expected economic divergence, monetary policy trajectories, and trade-related risks in 2025.

Key Points:

AUD – Bullish | Skew: Bullish

• Growth & Risk Sentiment: Strong domestic growth and resilient global risk appetite are expected to support AUD strength.
• Best Crosses: AUD is likely to outperform EUR and CAD, given its favorable fundamentals.

NZD – Neutral | Skew: Neutral

• RBNZ Policy Path: Morgan Stanley expects the Reserve Bank of New Zealand to cut rates toward neutral, limiting NZD upside.
• Yield Differentials: Downward pressure on NZD is expected as AUD/NZD benefits from yield divergence.

CAD – Neutral | Skew: Bearish

• Policy & Trade Risks: A dovish Bank of Canada, negative tariff implications, and softer oil prices create downside risks for CAD.
• Underperformance Outlook: CAD is expected to lag behind other dollar bloc currencies, particularly AUD and USD.

Conclusion:

Morgan Stanley’s tactical outlook suggests positioning long AUD, staying neutral on NZD, and shorting CAD due to policy divergence, trade risks, and relative commodity price trends. This stance reflects expected macroeconomic shifts and central bank actions in 2025.