HALISTER1: Aussie Pressure If Trade Deficit Spurs Recession Talk: Analysis

Aussie Pressure If Trade Deficit Spurs Recession Talk: Analysis

(Bloomberg) -- AUD/USD is vulnerable to testing the low in May should a trade deficit widen, raising the possibility of a first recession since 1991, Bloomberg strategist David Finnerty writes.
  • October trade deficit was larger-than-expected, adding to concerns that net export volumes may weigh on 4Q GDP
    • If November data, due on Jan. 6, corroborates this, the probability of negative 4Q growth on a quarterly basis increases unless other parts of the economy offset it
    • Net exports accounted for -0.2% of GDP in 3Q
  • Market pricing is indicating that interest rates will remain at 1.50% for 1H2017, with a hike beginning to be priced in 2H
  • If trade data changes expectations for an RBA rate cut instead, AUD/USD could test support at 0.7145, May 24 low, in near-term; breach of this level may see FX pair eye test of 0.70 handle
  • NOTE: David Finnerty is an FX strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.
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