AUD to carry on despite the liquidity peak - ANZ

According to the ANZ Macro Liquidity Indicator we have now entered phase 2 of the liquidity cycle which means that while the absolute level of global macro liquidity remains plentiful, its momentum has now turned negative and as such, the AUD is a prime candidate for out-performance, especially against the yen and some low-yielding Asian peers, explains the research team at ANZ.

Key Quotes

“Our Macro Liquidity Index signals we have entered phase 2 of the liquidity cycle. This suggests that, while in level terms liquidity remains abundant, momentum has turned. This has important implications for cyclical currencies like AUD, NZD and USD/Asia.”

“Our analysis shows that, during phase 2, the AUD tends to significantly outperform the JPY along with low-yielding Asian currencies.”

“This analysis, however, hinges on the assumption that global growth remains strong, as a deterioration in the growth outlook is usually correlated with a faster-than-expected tightening in liquidity conditions and, as such, a sell-off in cyclicals.” 

“As for now, a number of indicators continue to suggest momentum in the global economy remains solid and, in this environment, the AUD is likely to be well supported.”