22 Nov 2013
Flash: What are the implications of tapering for the Aussie? - TDS
FXstreet.com (Barcelona) - The Aussie is likely to be the under-performer once the Fed starts to wind down its monthly bond purchases, notes Shaun Osborne, Chief FX Strategist at TDS, who has recently put out a sell AUDUSD recommendation.
Key Quotes
"Our broad assumption is that tapering should mean somewhat higher volatility overall and may mean headwinds for those asset classes that have benefited from the liquidity spillover from central bank policy actions – stocks and commodities in the main. For the G-10 block, the NZD and the AUD primarily appear to have seen the strongest positive price elasticity relative to the Fed’s balance sheet expansion since the start of the QE process."
"Alongside some softness in commodities, the elasticity factor suggests that the NZD and AUD primarily are liable to under-perform once tapering gets underway. It is no coincidence that the NZD, followed by the AUD have been the top under-performers so far this week as tapering speculation has picked up in the wake of Fed comments and some better than expected data releases."
"The AUD has lost more than 4% over the past month and is the worst performing major currency over that period. A weaker exchange rate will be of some relief for local policy makers and while the market is nearing our end-2013 target, we think there is a good chance of a short-term overshoot as taper speculation picks up ahead of the December FOMC (17/18th)."
We think tapering is more likely in Q1 2014 but, if the recent positive run of US data continues, the markets will view the December meeting as potentially “live” for a tapering announcement, boosting the USD and pressuring the AUD (and NZD)."
Key Quotes
"Our broad assumption is that tapering should mean somewhat higher volatility overall and may mean headwinds for those asset classes that have benefited from the liquidity spillover from central bank policy actions – stocks and commodities in the main. For the G-10 block, the NZD and the AUD primarily appear to have seen the strongest positive price elasticity relative to the Fed’s balance sheet expansion since the start of the QE process."
"Alongside some softness in commodities, the elasticity factor suggests that the NZD and AUD primarily are liable to under-perform once tapering gets underway. It is no coincidence that the NZD, followed by the AUD have been the top under-performers so far this week as tapering speculation has picked up in the wake of Fed comments and some better than expected data releases."
"The AUD has lost more than 4% over the past month and is the worst performing major currency over that period. A weaker exchange rate will be of some relief for local policy makers and while the market is nearing our end-2013 target, we think there is a good chance of a short-term overshoot as taper speculation picks up ahead of the December FOMC (17/18th)."
We think tapering is more likely in Q1 2014 but, if the recent positive run of US data continues, the markets will view the December meeting as potentially “live” for a tapering announcement, boosting the USD and pressuring the AUD (and NZD)."