AUD/USD: leaning against market perceptions - Nomura

Analysts at Nomura explained, in respect to AUD/USD, that despite some better-than-expected Australian data and solid external growth momentum, they continue to think the domestic economy is faced with a number of underlying fundamental headwinds.

Key Quotes:

"The domestic economy is faced with a number of underlying fundamental headwinds such as the heavily-indebted household sector, negative real wage growth and a waning positive impulse from the maturing construction cycle. Excess capacity across the economy will take time to churn through."

"Indeed, based on recent outturns and signals from the July post-RBA meeting statement, the RBA’s growth outlook looks set to be revised lower in August, not higher."

"Rather than validating current market pricing for a possible start to the tightening cycle around Q3 2018, this is backdrop that should lean against it. In addition, the extent of AUD’s appreciation could be another point of focus, particularly as the rise in the trade-weighted index (TWI) looks to have moved ahead of commodity prices."

"The RBA’s preferred model for the real AUD TWI is heavily focused on the terms of trade (i.e. export prices relative to import prices) and the real policy rate differential between Australia and the G3. Arguably, the divergence between the real AUD TWI and the model estimate could now be reaching levels, where the RBA has in the past become more vocal about currency strength."