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FX Daily10 .pdf



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Deutsche Bank
Markets Research
Global

Foreign Exchange
FX Spot

Date
3 December 2013

FX Daily
Australian capital flow picture still
supportive
Australia’s Q3 balance of payments data showed a modest deterioration in the
balance of payments picture, with a further widening in the current account
deficit. Broader capital flow dynamics remain supportive, however, with ongoing
FDI inflows and a pick-up in flows into Australian government debt. Shorterterm flows then continue to largely drive bouts of AUD weakness, leaving AUD
vulnerable to sharp corrections higher. It is worth noting then that a lot of the
flow in AUD/USD on our platform last week has happened near the recent lows.
Widening in current account deficit largely reflects previously announced
revisions
The September quarter balance of payments data released today showed a
reasonably solid widening in the current account deficit – from a previously
reported AUD9.4bn in Q2 to AUD12.1bn in Q3. To a considerable extent the
widening relative to what was previously shown in the Q2 data is a result of
previously announced revisions to estimates of import values that largely
capture improved reporting of low-value consumer-good imports (in other
words internet shopping), with the Q2 deficit now reported at AUD12.1bn.
FDI inflows continue and government debt inflows picked up in Q3
As can be seen in the first two charts today the long-term inflow dynamics
revealed in today’s data remain supportive, however, with ongoing FDI and
portfolio debt inflows. Looking into these flows more closely, it can be seen in
Figure 3 that the FDI inflow picture remained little changed, with the fall in net
inflows reflecting greater outflows. And Figure 4 shows that there was a
marked pickup in inflows into Australian government debt (likely reflecting
more attractive valuations given the softness in AUD in the early stages of Q3,
as well as still attractive yields).
Shorter-term flows driving bouts of AUD weakness this year
As can be seen in Figure 5 this leaves Australia’s narrow basic balance of
payments in a modestly negative position, although still one that is very
healthy relative to most of the past 2 decades. If we broaden this picture out
to include longer-term debt and equity portfolio flows, it can be seen in Figure
6 that Australia broad basic balance of payments picture remains at levels
historically associated more often with AUD strength than AUD weakness, and
is certainly far from the sort of picture that has been associated with sustained
AUD weakness in the past.
These data then indicate it remains shorter-term flows that have largely driven
the bouts of AUD weakness this year (Figures 7 and 8 are indicative of the
extent of these flows). This likely leaves AUD vulnerable to sharp corrections
higher unless the outflows broaden out to in include the sort of longer-term
flows associated with sustained AUD weakness in the past. Given this, it is
worth noting then that the heaviest flow in AUD/USD on our platform last
week has happened near the recent lows (see Figure 9, and also our DBFX
Flow Report, 2 December 2013, for more on these flows).

________________________________________________________________________________________________________________
Deutsche Bank AG/Sydney

3 December 2013
FX Daily: Australian capital flow picture still supportive

Figure 1: Long-term capital flows into Australia remain positive …
Net Equity Flows (AUD bn)
Net FDI Flows (AUD bn)

60

Net Debt Flows (AUD bn)

40
20

0
-20
-40

-60
2000

2002

2004

2006

2008

2010

2012

Source: Deutsche Bank, Bloomberg Finance LP, Australian Bureau of Statistics

Figure 2: ...consistent with the trends of recent quarters...
Net Portfolio Equity Flows (AUD bn, LHS)

AUDbn 4qtr sum

Net FDI Flows (AUD bn, LHS)

140
120
100
80
60
40
20
0
-20
-40
-60
-80

Net Portfolio Debt Flows (AUD bn, LHS)

2000

2002

2004

2006

2008

2010

2012

Source: Deutsche Bank, Bloomberg Finance LP, Australian Bureau of Statistics

Figure 3: ... the big flow in the quarter was into government bonds...
Foreign purchases of Aust General govt. debt (AUD bn, LHS)
Australian purchases of Foreign general govt. debt (AUD bn, LHS)

30

Net Flows (AUD bn, RHS)

30

25

25

20

20

15

15

10

10

5

5

0

0

-5

-5

-10

-10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: Deutsche Bank, Bloomberg Finance LP, Australian Bureau of Statistics

Page 2

Deutsche Bank AG/Sydney

3 December 2013
FX Daily: Australian capital flow picture still supportive

Figure 4: ...and FDI inflows remain healthy...
FDI Inflow (AUD bn, LHS))
FDI Outflow (AUD bn, LHS)

60

60

Net Flows (AUD bn, RHS)

40

40

20

20

0

0

-20

-20

-40

-40

-60

-60
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: Deutsche Bank, Bloomberg Finance LP, Australian Bureau of Statistics

Figure 5: ... and while the narrow basic balance is a little off its peak…

20000

Australian Basic Balance - 4qtr sum fwd 2 qtrs (AUD mn,
LHS)

85

10000

AUD TWI (RHS)

80

0

75

-10000

70

-20000
65

-30000
60

-40000

55

-50000

50

-60000
-70000
1990

45
1993

1996

1999

2002

2005

2008

2011

Source: Deutsche Bank, Bloomberg Finance LP, Australian Bureau of Statistics

Figure 6: ... including long-term portfolio flows the picture is healthier...

80000

Australian Broad Basic Balance - 4qtr sum fwd 2 qtrs
(AUD mn, LHS)

60000

AUD TWI yoy% (RHS)

30

20

40000
10

20000
0

0

-20000

-10

-40000
-20

-60000
-80000
1990

-30
1993

1996

1999

2002

2005

2008

2011

2014

Source: Deutsche Bank, Bloomberg Finance LP, Australian Bureau of Statistics

Deutsche Bank AG/Sydney

Page 3

3 December 2013
FX Daily: Australian capital flow picture still supportive

Figure 7: ….so it is shorter-term flows that have largely been responsible ...
120.0

Net Non-Commercial Positions on IMM (Lhs)

100.0

1.12

AUD/USD (Rhs)

80.0
60.0

1.02
Net Long

40.0

0.92

20.0

0.82

0.0
-20.0

0.72

-40.0
-60.0

0.62

-80.0
-100.0
Jan 03

Net Short
0.52
Jan 05

Jan 07

Jan 09

Jan 11

Jan 13

Source: Deutsche Bank, Bloomberg Finance LP

Figure 8: ….for AUD weakness...

Source: Deutsche Bank, Bloomberg Finance LP

Figure 9: ….and it is worth noting a lot of the flow on our platform last week
was near the lows

Source: Deutsche Bank

Page 4

Deutsche Bank AG/Sydney


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