Forex Brokers Modestly Bearish on AUD/NOK

France Industrial Production

Forex brokers at Goldman Sachs have already closed their top trade to end up short position on the AUD/NOK to gather up profits of 3.8%. Their rationale is there is a big probability that the AUD would weaken due to the ongoing easing bias by the Reserve Bank of Australia due to the slowdown in domestic growth and declining risk aversion. This translates to a reduction in the demand for Australian fixed income. The forex brokers argued that their views against the Norwehian Kroner based from the rationale that Norway is a commodity producer and decorated with a triple-A rating. Therefore, NOK is exposed to the “safe haven” type of capital flows like Australia. Moreover, the forex brokers had expected the Norwegian economy to be still more resilient than Australia and thus, the Norges Bank is capable of tolerating stricter financial conditions.

Risks

As mentioned earlier, AUD is expected to assume greater declines and thus they are recommending a short position on the AUD/NOK above the 5.67 range. This trade by Goldman Sachs was opened at 5.90 last 3 December 2012. Forex analysts expect the Reserve Bank of Australia to cut rates again in November although there could be no more prolonged waiting period given the recent economic releases. The Reserve Bank of Australia would probably continue to convince to make the currency lower. The broker’s twelve month forecast is 0.85 and they are on a look out for selling opportunities given their bearish view on the Aussie dollar.

Currency Cycle

The Australian economy was said to be slower and the commodity investment cycle has ushered in a negative sentiment. This resulted a further 50 bps of easing from the Reserve Bank of Australia. Australian fixed income has a waning foreign demand. Likewise, the Balance of Payments has weakened. The Australian dollar trade weighted index depreciated by 7% where depreciation reached a maximum of 12% last August.

On one hand, the Norwegian Kroner also dissapointed forex investors. The Norges Bank has become more dovish with a softer than expected economic activity which led to a fragile NOK. Inflation has been mild. The September CPI-ATE data was one of the weakest ever, it slipped by -0.4% M/M and weighed on the AUD/NOK to climb above its trailing stop limit.

French Industrial Production

France’ industrial production slightly climbed by 0.2% M/M or a minus 2.2% Y/Y versus consensus estimate of 0.6%. Previous print was a minus 0.6%. This offsets the drop that was experienced last July by 0.6% M/M. The climb was driven by manufacturing. On one hand, energy production diminished. Breaking it down into subsectors, the increase was pushed by motor vehicles which more than made up for the July decreases, concluding a high monthly volatility during holidays. Food and beverage also contributed a positive print. Overall, these sub-sectors offset the total contribution of the other sectors with electricity, coke and manufactured products slightly down while the mining sector is flat.

By industrial groups, Barclays economists noted the increase was bolstered by intermediate goods and investment goods. Consumer goods shrank in August, while durable goods contracted. Non durables were flat. Energy continued to fall.

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