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    AUD: Time is now right to increase bearish AUD positions - SocGen Sandeep Kanihama

    Research Team at Societe Generale, suggests that the time is now right to increase bearish AUD positions via options, since the RBA is not finished making cuts and China’s bumpy landing will see sentiment remain fragile.Key QuotesMore RBA cuts to come, and this is not fully pricedThe RBA surprised the market and us in cutting the cash rate target by 25bp to 1.75% in May. Clearly, this decision was motivated by the severe downgrade of the central bank inflation outlook. In particular, wage growth is plunging and disanchoring from the unemployment rate. Price dynamics are being significantly reassessed by the board, with the end-2016 forecast lowered by 1% and reduced rates until mid-2018. This strongly suggests that the latest cut is not a one-off and that at least one more cut is to come this year.The upcoming national elections certainly prevented a June cut, while August is probably inappropriate, since new economic forecasts will be discussed. The rates market is pricing a 40% probability of a 25bp cut between August and the end of the year, so an earlier cut or more cuts would trigger a sharp market reaction and hurt the AUD. A first rate cut in July is our main scenario, and globally we believe that a cut of at least 50bp is appropriate.”

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