AUD/USD: A meaning downside correction on the cards? – Morgan Stanley

In its latest overnight client note on the AUD/USD outlook, analysts at Morgan Stanley believe that the Aussie is poised for ‘a meaningful downside correction’.

Key Quotes:

“After a string of positive surprises in 2017, the March employment data indicate a deceleration in employment growth during 1Q18.

• With inflation running below the central bank's target range mid-point, the strengthening labor market has been the cause for increasing bullishness from the RBA over the past 6 months.
• Today's report should, however, be interpreted as a warning sign for growth, confirming that there is still substantial slack in the labor market and that demand-pull inflation is unlikely to filter through soon.

After initial AUD weakness, the currency surprisingly resumed its upward trend since the beginning of the month.

• The move could be attributable to positioning, with AUD remaining a favored short, compared to neighboring NZD where long positioning may have prevented the currency from strengthening despite the marginal positive surprise in CPI.
• The AUD failed to break through technical support levels both against the USD and NZD earlier this month, and while we acknowledge that AUDUSD could have further room to move to the topside if it breaks through 0.7830, we maintain strategic short in AUDUSD, looking for a meaningful downside correction.”