External factors pressurizing more on AUD

We, at FxWirePro, think risks to the AUD are biased to the downside, relative to our forecasts. starting with negative surprises, we identify:

A downside shock to Chinese growth continues/rampant of commodity prices:

If severe enough, either of these outcomes would risk a recession in Australia. While policy makers would have scope to deliver both fiscal and monetary easing, we suspect this outcome would be quite bearish for the currency as growth expectations shift lower, rate differentials narrow and Australia's AAA credit rating is questioned.  

Supply side constraints force the Fed into a more aggressive tightening cycle:

If the Fed is surprised by a still-falling unemployment rate in 2016, short rate differentials could compress by more than forecast, forcing AUD/USD lower. This dynamic could be exacerbated if Australia struggles to escape sub-trend growth in 2H16.  

Finally, intensification of the EM debt deleveraging cycle, which risks a marked slowing in Australia's trading partner growth.