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AUD/CNY to continue trending lower - Westpac

Westpac strategists expect the Australian dollar to continue falling against Chin's Yuan and drop to mid-4.60 in the near term. 

Key points

Our base case is for the RBA to cut the cash rate to 0.5% in Feb, followed later in the year by another cut and QE. This outlook should keep AUD/CNY trending lower.

AUD has background support from ongoing historically large trade surpluses, elevated equity prices and low volatility. But sub-trend growth and muted inflation are keeping markets leaning towards further RBA easing.

Yuan's recent 3% gains against the US dollar might be somewhat excessive, as the US-China trade deal offers only limited tariff relief for China in exchange for a huge increase in purchases of US exports.

AUD/CNY is currently trading at 4.72, representing a 3.6% drop on a year-to-date basis. "Any recoveries to above 4.80 are likely to fade," Westpac strategists mentioned in the daily note. 

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