From the FXWW Chatroom – AUDUSD is finally attempting to breakout of its YTD downward channel as risk premium on global trade tensions recedes. Not to mention Australia’s trade balance data last night showed the 3rd largest surplus on record. This is in line with our view that the underlying fundamentals in Australia are strong (stronger growth, persistent trade surpluses and higher commodity export prices) and yet the market is not reflecting it.
Trade Idea:
AUDUSD: Spot ref: 0.7200
Buy 6mth 0.7350 / 0.7700 call spread
Vs.
Sell 6mth 0.6900 put
Premium offer: 18.5 bps AUD in equal notional/leg
BofAML’s FX Strategist Adarsh Sinha shows the AUD TWI (trade-weighted index) has not been this undervalued since 2009. However, we remain confident that Australia’s strong fundamental backdrop will ultimately be reflected in AUD TWI appreciation in ‘19 – two initial triggers before year end: 1) receding of trade tensions, particularly around Xi-Trump meeting on Nov 30 2) evidence of stronger easing policies from China and consequent stabilization of Chinese growth expectations.
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