Morgan Stanley: Weekly CAD AUD NZD outlook

08 February,, London – Following the weekly G4 outlook, Morgan Stanley has further analysed the main three G10 commodity currencies and shared its weekly CAD AUD NZD outlook.

CAD: Temporary respite – Neutral

“We believe that CAD may see a temporary respite in an environment of stabilizing oil prices and a more cautious Fed,” Morgan Stanley begins.

Yet, the medium term narrative remains unchanged. The great change that the BoC has been looking for is not happening; manufacturing and non-commodity trade closed 2015 on a weak note and have shown little signs of reversal. Moreover, the Business Outlook Survey indicated the weakest hiring and investment intentions since the 2008 crisis.

So much “we add a limit order to buy USDCAD in our strategic portfolio this week,” Morgan Stanley added.

AUD: Increasing carry – Bullish

Ahead of the Lunar New Year, the Chinese authorities have kept the USDCNY fix stable, bringing a period of calmness over the past week. Along with the latest liquidity injections, this muting of volatility is likely to temporarily support carry trades.

From a fundamental perspective, Australian economic inflation and growth numbers both surprised to the topside. Also, the RBA was less dovish than the prior meeting.

“Consequently, we believe that AUD can continue to outperform in the near term,” Morgan Stanley projected.

NZD: Sell on rallies – Bearish

“One of the largest shorts within G10 was for NZD, which is why the currency has seen a large retracement in recent days,” Morgan Stanley pointed.

Instead of pursuing the rally, the investment bank advises to wait for opportunities to sell since the economic outlook has not been improved. In fact, milk prices declined another 10% at the latest auction, weighing on the dairy farmers further. Meanwhile, inflation remains low, although the RBNZ does not think it is an issue.

“Data will make them swing, we believe, so sell on rebounds,” Morgan Stanley concluded.

Consider reading: Barclays technical setups: Lunar New Year

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