AUD: Fade the positive politics move – Nordea Markets

AUD/USD rebounded after the new PM (Scott Morrison) in Australia was announced Friday morning and although the new PM Scott Morrison is a less controversial choice than Peter Dutton, but this is not necessarily equal to short-term good news for AUD anyway.

Key Quotes

“These internal leadership contests are a well-known phenomenon in Australian politics and usually AUD/USD heads south after a new PM is announced in these internal battles. Being short AUD/USD 7 trading days after a new PM was found in an internal battle has had a 100% track record since 2010.”

“Another reason to stay sceptical towards the AUD is the lack of positive impulses from China. While we have argued in recent weeks that there are good reasons to believe in a comeback in China in roughly 9 months from now, as i) SHIBOR-rates have dropped like a stone, ii) The CNY has weakened materially and iii) fiscal stimulus is on the cards, we judge that it is too early to expect those impulses to have a positive side-effect on the AUD.”

“On our models, there is in between 12 and 15 months of lag time from falling SHIBOR-rates and until the Chinese momentum has gathered enough pace to lift AUD as well. AUD could make a solid come back down the road, but it is still too early.”

“We re-add short AUD/USD to our tactical convictions after the recent rally and would only consider reversing the trade, if AUD/USD breaks above 0.7450 (the top of the bearish channel since February).”

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