The Australian dollar is fetching $0.8655 in early Monday trade, down a bit more than 7 percent since the beginning of September, touching its lowest levels since January.
Morgan Stanley’s bullish call had been premised on the assumption that non-resident buyers of Australian government debt and Japanese buyers of Australian-dollar assets would remain keen, as well as an expectation that the country’s terms of trade would stabilize.
But with U.S. yields starting to rise again and increased volatility in markets, Australian government bonds became less attractive, Morgan Stanley said adding that it expected the Aussie dollar to depreciate further “especially with G-10 foreign exchange becoming increasingly sensitive to moves in the belly of the U.S. curve.”
In addition, prices of Australia’s main commodity exports, especially iron ore, continue to deteriorate, and the trade balance isn’t likely to return to a surplus until 2016, when liquified natural gas exports are likely to pick up, the bank said. It also expects the recent weakening in China’s economic data may herald a protracted slowdown in the mainland’s import demand.
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