Less dovish RBA, rebounding global milk prices and better than expected Canadian Q2 GDP data yesterday did little to brighten the outlook of AUD, NZD and CAD.
Overnight, the Australian Q2 GDP came in weaker than expected on the back of falling exports and pushed AUD to another multi-year low.
Investors should remain cautious on AUD, NZD and CAD as lingering global growth and inflation concerns weigh on commodity prices and keep bets on more easing by the RBA, the RBNZ and the BoC on the table.
China will remain at the epicentre of these concerns. We think that the Chinese authorities will ultimately embrace the idea that a concerted fiscal stimulus in addition to the generous monetary stimulus already in place is needed to address the current demand shock that is made worse by the impaired domestic lending channel and the wide-spread deleveraging. Until this time arrives, however, global growth and inflation concerns should continue to cloud the outlook for AUD, NZD and CAD.
In addition, the upcoming Fed lift-off (which we now expect in December) could lead to tighter global monetary conditions and worsen the external environment for currencies with sizeable CA deficits like AUD, NZD and CAD.
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