We break down capital flows data and conclude that ‘flows’ will only push AUD through parity if: the mining investment boom returns; or interest rate differentials between Australia and the US will return to the levels seen in 2012 (which would require ~100 bps of rate hikes in Australia); or credit growth accelerates dramatically (or some combination of the above). None of these events are likely in our view.
Read the full report: FX Daily