AUD drivers are evolving. Domestic fundamentals look like they could stabilise and the fair value estimate look better than it has for some time. This reduces some tail risks for the AUD in the months ahead.
Concurrently, some of the risk premium expected to be priced into the AUD has been priced back into Australian bond yields instead. As such, investors are slightly better compensated for the risks they are taking.
Resultantly, the AUD looks more attractive on the crosses, and the AUD/USD decline will be gentler than expected. As such we nudge our 2015 and 2016 forecasts higher and recommend an option strategy to hold in a lower risk (but still) negative AUD environment.
We raise our June 2015 AUD/USD forecast to USD0.76, and our Dec 2015 forecast to USD0.73. We also recommend buying a 1-month AUD/USD put with a strike of USD0.7875 and a knock out at USD0.7500, at a cost of 39bp.