Expect more of what we saw yesterday

Morgan Stanley expects today’s recovery in the Australian and New Zealand dollars to run out of steam as the US dollar, yen and euro lead the way higher.

“Against EM, the USD has potential to rally. When we called the USD heading towards an autumn rally, we made it clear that we did not expect a universal USD advance. The USD will do well against most of EM, AUD, CAD and NZD, but will underperform the JPY and EUR,” they write in a report today.

They say the current account surpluses in Japan and Europe bode well for those currencies (but watch out for German elections this weekend).

In the big picture they say global liquidity may be tightening and that will lead to continued volatility. Add in wage growth and you have reasons for concern.


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