NAB Research discusses AUD/USD outlook in light of the of the overnight flash crash.
“Violent moves in AUD and JPY yesterday morning bear all the hallmarks of a ‘flash crash’ similar to that which befell NZD in August 2015 and GBP in October 2016. Apple’s revised guidance was an initial fundamental catalyst, but can’t justify moves of this scale. AUD/USD is now back in line with ‘fair value’, currently estimated near 0.69,” NAB notes.
“A Sino-US trade deal in coming weeks is a prerequisite for a sustainable move back above 0.70. We have lately become much more hopeful of this being realised, given that both sides now have big incentives to strike a deal (China because of the evident extent of its economic slowdown, President Trump because of the current ill-health of the US stock market). If so, we’d expect AUD to be trading back reasonably comfortably above 0.70 before Q1 is out. Further out, we continue to expect a weaker US dollar as 2019 unfolds to see AUD/USD nearer 0.75 than 0.70 later in the year,” NAB argues.